Loyalty Founder EnterpriseLtd’s (GTSM:5465) stock is up by 2.1% over the past week. Given its impressive performance, we decided to study the company’s key financial indicators as a company’s long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Loyalty Founder EnterpriseLtd’s ROE today.
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. Put another way, it reveals the company’s success at turning shareholder investments into profits.
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 Loyalty Founder EnterpriseLtd is:
11% = NT$280m ÷ NT$2.6b (Based on the trailing twelve months to September 2020).
The ‘return’ is the yearly profit. So, this means that for every NT$1 of its shareholder’s investments, the company generates a profit of NT$0.11.
What Has ROE Got To Do With Earnings Growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. 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.
Loyalty Founder EnterpriseLtd’s Earnings Growth And 11% ROE
To begin with, Loyalty Founder EnterpriseLtd seems to have a respectable ROE. Further, the company’s ROE is similar to the industry average of 11%. Consequently, this likely laid the ground for the impressive net income growth of 27% seen over the past five years by Loyalty Founder EnterpriseLtd. We reckon that there could also be other factors at play here. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.
Next, on comparing with the industry net income growth, we found that Loyalty Founder EnterpriseLtd’s growth is quite high when compared to the industry average growth of 6.1% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. Is Loyalty Founder EnterpriseLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Loyalty Founder EnterpriseLtd Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 68% (implying that it keeps only 32% of profits) for Loyalty Founder EnterpriseLtd suggests that the company’s growth wasn’t really hampered despite it returning most of the earnings to its shareholders.
Additionally, Loyalty Founder EnterpriseLtd has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders.
In total, we are pretty happy with Loyalty Founder EnterpriseLtd’s performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company’s past performance by looking at the company’s fundamentals. So it may be worth checking this free detailed graph of Loyalty Founder EnterpriseLtd’s past earnings, as well as revenue and cash flows to get a deeper insight into the company’s performance.
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This article by Simply Wall St is general in nature. 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.
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