Looking at LONGi Green Energy Technology's (SHSE:601012) recent performance, it's hard to get excited, with the share price down 24% in the past three months. However, the company's fundamentals are pretty strong and long term financial performance is usually in line with future market price movements. In particular, we'll be looking at LONGi Green Energy Technology's ROE today.
Return on equity (ROE) is a key indicator used to assess how efficiently a company's management is utilizing their capital. Simply put, it is used to evaluate a company's profitability relative to their equity capital.
View our latest analysis for LONGi Green Energy Technology
How is ROE calculated?
Return on equity can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) / Shareholders' Equity
So, based on the above formula, LONGi Green Energy Technology's ROE is:
6.9% = CNY4.7bn / CNY68bn (Based on the trailing twelve months to March 2024).
“Revenue” is the income the company earned last year. Another way to look at this is that for every 1 RMB worth of capital, the company was able to earn 0.07 RMB worth of profit.
What is the relationship between ROE and profit growth?
Thus far, we have learned that ROE is a measure of how efficiently a company is generating its profits. Next, we need to evaluate how much of its profits the company is reinvesting or “retaining” for future growth. This gives us an idea about a company's growth potential. Assuming all other things are equal, companies with both a higher return on equity and retained profits are usually companies with higher growth rates compared to companies that don't share the same characteristics.
LONGi Green Energy Technology's Revenue Growth and 6.9% ROE
At first glance, LONGi Green Energy Technology's ROE isn't much to talk about. However, we don't write the company off entirely, as its ROE is on par with the industry average of 5.8%. We're certainly impressed, especially when you consider LONGi Green Energy Technology's five-year net profit growth rate of 21% is an exceptional figure. Given that the ROE isn't that high, we believe there are other factors influencing the company's growth, such as high profit retention and an efficient management system.
Next, we compare LONGi Green Energy Technology's net income growth with the industry, and find that the company's reported growth is in line with the average industry growth rate of 19% over the past few years.
SHSE:601012 Historical Revenue Growth August 16, 2024
The valuation criteria for a company are heavily tied to its earnings growth rate. It is important for investors to know if the market has priced in a company's expected earnings growth rate (or decline). This will help them know if the stock is headed for a bright future or a quagmire ahead. Is LONGi Green Energy Technology fairly valued relative to other companies? The following three valuation metrics may help you decide:
Does LONGi Green Energy Technology utilize its profits efficiently?
LONGi Green Energy Technology's three-year median dividend payout ratio is quite low at 15%, meaning that it is able to reinvest the remaining 85% back into the business. This means that LONGi Green Energy Technology is actively reinvesting its profits into expanding its business, and this seems to be showing in its earnings growth.
Additionally, LONGi Green Energy Technology has been paying dividends for at least 10 years, which indicates the company is committed to sharing profits with shareholders. After studying the latest analyst consensus data, the company is expected to continue paying out around 16% of its profits over the next three years. However, LONGi Green Energy Technology's ROE is forecast to rise to 13%, despite no expected changes to its dividend payout ratio.
summary
Overall, we feel that LONGi Green Energy Technology has some positive attributes. Although its ROE is low, the company has been able to achieve strong earnings growth thanks to its high reinvestment rate. We looked at current analyst forecasts and found that analysts expect the company to continue its recent growth trends. For more information on the latest analyst forecasts for the company, check out our visualization of analyst forecasts for the company.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
