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Jiangsu JieJie Microelectronics Co.,Ltd.'s (SZSE:300623) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St ·  May 27, 2022 20:00

It is hard to get excited after looking at Jiangsu JieJie MicroelectronicsLtd's (SZSE:300623) recent performance, when its stock has declined 29% over the past three months. 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 Jiangsu JieJie MicroelectronicsLtd'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Jiangsu JieJie MicroelectronicsLtd

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 Jiangsu JieJie MicroelectronicsLtd is:

12% = CN¥493m ÷ CN¥4.0b (Based on the trailing twelve months to March 2022).

The 'return' is the yearly profit. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.12 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. 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 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.

Jiangsu JieJie MicroelectronicsLtd's Earnings Growth And 12% ROE

To begin with, Jiangsu JieJie MicroelectronicsLtd seems to have a respectable ROE. On comparing with the average industry ROE of 9.5% the company's ROE looks pretty remarkable. This probably laid the ground for Jiangsu JieJie MicroelectronicsLtd's significant 30% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Jiangsu JieJie MicroelectronicsLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 31% in the same period.

SZSE:300623 Past Earnings Growth May 27th 2022

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Jiangsu JieJie MicroelectronicsLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Jiangsu JieJie MicroelectronicsLtd Using Its Retained Earnings Effectively?

Jiangsu JieJie MicroelectronicsLtd's three-year median payout ratio is a pretty moderate 26%, meaning the company retains 74% of its income. By the looks of it, the dividend is well covered and Jiangsu JieJie MicroelectronicsLtd is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Jiangsu JieJie MicroelectronicsLtd is determined to keep sharing its profits with shareholders which we infer from its long history of five years of paying a dividend.

Conclusion

Overall, we are quite pleased with Jiangsu JieJie MicroelectronicsLtd's performance. 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 sizeable 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 3 risks we have identified for Jiangsu JieJie MicroelectronicsLtd by visiting our risks dashboard for free on our platform here.

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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.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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