Are Strong Financial Prospects The Force That Is Driving The Momentum In Suzhou Etron Technologies Co.,Ltd.'s SHSE:603380) Stock?

Simply Wall St · Nov 2, 2023 18:20

Suzhou Etron TechnologiesLtd (SHSE:603380) has had a great run on the share market with its stock up by a significant 11% over the last week. Since the market usually pay for a company's long-term fundamentals, we decided to study the company's key performance indicators to see if they could be influencing the market. Specifically, we decided to study Suzhou Etron TechnologiesLtd's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Suzhou Etron TechnologiesLtd

How To Calculate Return On Equity?

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 Suzhou Etron TechnologiesLtd is:

11% = CN¥150m ÷ CN¥1.3b (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. So, this means that for every CN¥1 of its shareholder's investments, the company generates a profit of CN¥0.11.

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 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.

A Side By Side comparison of Suzhou Etron TechnologiesLtd's Earnings Growth And 11% ROE

To start with, Suzhou Etron TechnologiesLtd's ROE looks acceptable. Especially when compared to the industry average of 6.6% the company's ROE looks pretty impressive. This certainly adds some context to Suzhou Etron TechnologiesLtd's decent 12% net income growth seen over the past five years.

Next, on comparing Suzhou Etron TechnologiesLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 11% over the last few years.

past-earnings-growth — SHSE:603380 Past Earnings Growth November 2nd 2023

Earnings growth is a huge factor in stock valuation. 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. What is 603380 worth today? The intrinsic value infographic in our free research report helps visualize whether 603380 is currently mispriced by the market.

Is Suzhou Etron TechnologiesLtd Using Its Retained Earnings Effectively?

Suzhou Etron TechnologiesLtd's three-year median payout ratio to shareholders is 15% (implying that it retains 85% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Besides, Suzhou Etron TechnologiesLtd has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Suzhou Etron TechnologiesLtd'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. 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.

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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.