Baoji Titanium Industry Co., Ltd.'s (SHSE:600456) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Simply Wall St · 10/15 22:39

Most readers would already be aware that Baoji Titanium Industry's (SHSE:600456) stock increased significantly by 29% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Baoji Titanium Industry's ROE today.

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.

See our latest analysis for Baoji Titanium Industry

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 Baoji Titanium Industry is:

9.2% = CN¥682m ÷ CN¥7.4b (Based on the trailing twelve months to June 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.09.

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.

Baoji Titanium Industry's Earnings Growth And 9.2% ROE

At first glance, Baoji Titanium Industry's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 7.7%. On the other hand, Baoji Titanium Industry reported a moderate 18% net income growth over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

We then compared Baoji Titanium Industry's 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 10% in the same 5-year period.

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SHSE:600456 Past Earnings Growth October 15th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Baoji Titanium Industry fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Baoji Titanium Industry Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 43% (implying that the company retains 57% of its profits), it seems that Baoji Titanium Industry is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Additionally, Baoji Titanium Industry has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, it does look like Baoji Titanium Industry has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.