Sino-High (China) Co., Ltd.'s (SZSE:301076) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Simply Wall St · 09/27 22:56

Sino-High (China) (SZSE:301076) has had a great run on the share market with its stock up by a significant 14% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Sino-High (China)'s ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Sino-High (China)

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Sino-High (China) is:

6.3% = CN¥71m ÷ CN¥1.1b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.06.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Sino-High (China)'s Earnings Growth And 6.3% ROE

At first glance, Sino-High (China)'s ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 6.4%, we may spare it some thought. Having said that, Sino-High (China) has shown a modest net income growth of 6.9% over the past five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Sino-High (China)'s net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 6.2% over the last few years.

past-earnings-growth
SZSE:301076 Past Earnings Growth September 27th 2024

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Sino-High (China)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Sino-High (China) Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 49% (implying that the company retains 51% of its profits), it seems that Sino-High (China) is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

While Sino-High (China) has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

Overall, we feel that Sino-High (China) certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.