Is HARBIN GLORIA PHARMACEUTICALS Co., LTD's (SZSE:002437) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Simply Wall St · 09/29 00:43

HARBIN GLORIA PHARMACEUTICALS (SZSE:002437) has had a great run on the share market with its stock up by a significant 21% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on HARBIN GLORIA PHARMACEUTICALS' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for HARBIN GLORIA PHARMACEUTICALS

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

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

So, based on the above formula, the ROE for HARBIN GLORIA PHARMACEUTICALS is:

12% = CN¥228m ÷ CN¥1.9b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.12.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

HARBIN GLORIA PHARMACEUTICALS' Earnings Growth And 12% ROE

To begin with, HARBIN GLORIA PHARMACEUTICALS seems to have a respectable ROE. Especially when compared to the industry average of 7.6% the company's ROE looks pretty impressive. This probably laid the ground for HARBIN GLORIA PHARMACEUTICALS' significant 52% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared HARBIN GLORIA PHARMACEUTICALS' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 9.0% in the same 5-year period.

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SZSE:002437 Past Earnings Growth September 29th 2024

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about HARBIN GLORIA PHARMACEUTICALS''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is HARBIN GLORIA PHARMACEUTICALS Efficiently Re-investing Its Profits?

Given that HARBIN GLORIA PHARMACEUTICALS doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, we are pretty happy with HARBIN GLORIA PHARMACEUTICALS' performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. You can see the 2 risks we have identified for HARBIN GLORIA PHARMACEUTICALS by visiting our risks dashboard for free on our platform here.