Shandong Jianbang New Material Co., Ltd.'s (SHSE:603285) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 10/16 01:28

With its stock down 13% over the past week, it is easy to disregard Shandong Jianbang New Material (SHSE:603285). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to Shandong Jianbang New Material's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Shandong Jianbang New Material

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 Shandong Jianbang New Material is:

18% = CN¥187m ÷ CN¥1.0b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each CN¥1 of shareholders' capital it has, the company made CN¥0.18 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Shandong Jianbang New Material's Earnings Growth And 18% ROE

At first glance, Shandong Jianbang New Material seems to have a decent ROE. On comparing with the average industry ROE of 6.4% the company's ROE looks pretty remarkable. Probably as a result of this, Shandong Jianbang New Material was able to see a decent growth of 8.4% over the last five years.

We then compared Shandong Jianbang New Material'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 6.3% in the same 5-year period.

past-earnings-growth
SHSE:603285 Past Earnings Growth October 16th 2024

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Shandong Jianbang New Material fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Shandong Jianbang New Material Using Its Retained Earnings Effectively?

Given that Shandong Jianbang New Material 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

Overall, we are quite pleased with Shandong Jianbang New Material's 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.