Most readers will already know that shares of Zhaojin Mining Industry (HKG:1818) have risen a significant 18% over the past month. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. Specifically, we decided to study the ROE of Zhaojin Mining Industry in this article.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simpler terms, it measures a company’s profitability relative to equity.
Our analysis indicates that 1818 is potentially undervalued!
How is ROE calculated?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for the Zhaojin mining industry is:
2.1% = 416 million Canadian yen ÷ 20 billion Canadian yen (based on the last twelve months to September 2022).
The “yield” is the profit of the last twelve months. This means that for every HK$1 of equity, the company generated HK$0.02 of profit.
What is the relationship between ROE and earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Zhaojin Mining Industry Earnings Growth and ROE of 2.1%
It is difficult to say that the ROE of Zhaojin Mining Industry is very good by itself. Even compared to the industry average ROE of 12%, the company’s ROE is pretty dismal. Therefore, it may not be wrong to say that the 11% drop in net income over five years that Zhaojin Mining Industry saw was possibly the result of lower ROE. We believe there could also be other aspects that negatively influence the company’s earnings outlook. Such as – low income retention or poor capital allocation.
That being said, we compared the performance of Zhaojin Mining Industry with that of the industry and became concerned when we found that while the company had reduced its profits, the industry had increased its profits at a rate of 29%. during the same period.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Has the market priced in the outlook for 1818? You can find out in our latest infographic research report on intrinsic value.
Is the Zhaojin Mining Industry Effectively Utilizing Retained Earnings?
Although the company has paid a portion of its dividend in the past, it currently does not pay any dividend. This implies that potentially all of its profits are reinvested in the business.
All in all, we are a bit ambivalent about the performance of Zhaojin Mining Industry. Even though it seems to keep most of its profits, given the low ROE, investors may not be benefiting from all that reinvestment after all. Weak earnings growth suggests our theory is correct. That said, looking at current analyst estimates, we found that the company’s earnings growth rate should see a huge improvement. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.
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Find out if Zhaojin Mining Industry is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.