Jianmin Pharmaceutical Group Co.,Ltd.'s (SHSE:600976) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Simply Wall St · 10/16 01:49

It is hard to get excited after looking at Jianmin Pharmaceutical GroupLtd's (SHSE:600976) recent performance, when its stock has declined 16% over the past week. 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 Jianmin Pharmaceutical GroupLtd's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Jianmin Pharmaceutical GroupLtd

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Jianmin Pharmaceutical GroupLtd is:

22% = CN¥511m ÷ CN¥2.3b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.22.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Jianmin Pharmaceutical GroupLtd's Earnings Growth And 22% ROE

To start with, Jianmin Pharmaceutical GroupLtd's ROE looks acceptable. Especially when compared to the industry average of 7.6% the company's ROE looks pretty impressive. Probably as a result of this, Jianmin Pharmaceutical GroupLtd was able to see an impressive net income growth of 36% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Jianmin Pharmaceutical GroupLtd'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 9.0% in the same 5-year period.

past-earnings-growth
SHSE:600976 Past Earnings Growth October 16th 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. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Jianmin Pharmaceutical GroupLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Jianmin Pharmaceutical GroupLtd Efficiently Re-investing Its Profits?

Jianmin Pharmaceutical GroupLtd's three-year median payout ratio is a pretty moderate 35%, meaning the company retains 65% of its income. By the looks of it, the dividend is well covered and Jianmin Pharmaceutical GroupLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Jianmin Pharmaceutical GroupLtd is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

Overall, we are quite pleased with Jianmin Pharmaceutical GroupLtd'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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.