Jinchuan Group International Resources Co. Ltd's (HKG:2362) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong? - Simply Wall St - Financial Daily News Site

Jinchuan Group International Resources Co. Ltd's (HKG:2362) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong? – Simply Wall St

With its stock down 40% over the past three months, it is easy to disregard Jinchuan Group International Resources (HKG:2362). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Jinchuan Group International Resources’ 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.

View our latest analysis for Jinchuan Group International Resources

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 Jinchuan Group International Resources is:

14% = US$162m ÷ US$1.2b (Based on the trailing twelve months to December 2021).

The ‘return’ is the income the business earned over the last year. That means that for every HK$1 worth of shareholders’ equity, the company generated HK$0.14 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Jinchuan Group International Resources’ Earnings Growth And 14% ROE

At first glance, Jinchuan Group International Resources seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 12%. This certainly adds some context to Jinchuan Group International Resources’ moderate 16% net income growth seen over the past five years.

We then compared Jinchuan Group International Resources’ net income growth with the industry and found that the company’s growth figure is lower than the average industry growth rate of 24% in the same period, which is a bit concerning.

past-earnings-growth
SEHK:2362 Past Earnings Growth May 28th 2022

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you’re wondering about Jinchuan Group International Resources”s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Jinchuan Group International Resources Making Efficient Use Of Its Profits?

In Jinchuan Group International Resources’ case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 2.7% (or a retention ratio of 97%), which suggests that the company is investing most of its profits to grow its business.

Moreover, Jinchuan Group International Resources is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend.

Summary

On the whole, we feel that Jinchuan Group International Resources’ performance has been quite good. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company’s earnings are expected to accelerate. 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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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