Do Its Financials Have Any Role To Play In Driving New Journey Health Technology Group Co.,LTD’s (SZSE:002219) Stock Up Recently?

Most readers would already be aware that New Journey Health Technology GroupLTD’s (SZSE:002219) stock increased significantly by 54% over the past three months. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on New Journey Health Technology GroupLTD’s ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for New Journey Health Technology GroupLTD

How Is ROE Calculated?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for New Journey Health Technology GroupLTD is:

2.5% = CN¥59m ÷ CN¥2.4b (Based on the trailing twelve months to September 2024).

The ‘return’ is the amount earned after tax over the last twelve months. Another way to think of that is that for every CN¥1 worth of equity, the company was able to earn CN¥0.03 in profit.

What Is The Relationship Between ROE And 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.

New Journey Health Technology GroupLTD’s Earnings Growth And 2.5% ROE

As you can see, New Journey Health Technology GroupLTD’s ROE looks pretty weak. Not just that, even compared to the industry average of 6.7%, the company’s ROE is entirely unremarkable. Despite this, surprisingly, New Journey Health Technology GroupLTD saw an exceptional 75% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company’s earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared New Journey Health Technology GroupLTD’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 2.0% in the same 5-year period.

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). 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 New Journey Health Technology GroupLTD’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is New Journey Health Technology GroupLTD Making Efficient Use Of Its Profits?

Given that New Journey Health Technology GroupLTD doesn’t pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

Overall, we feel that New Journey Health Technology GroupLTD certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won’t completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 3 risks we have identified for New Journey Health Technology GroupLTD visit our risks dashboard for free.

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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.