Most readers would already know that the Powertech Technology (TWSE:6239) share price has increased by a significant 44% over the past three months. Considering that stock prices are typically in line with a company’s financial performance over the long term, we take a closer look at financial indicators to see if they are influencing recent stock price movements. I made it. Specifically, we decided to examine Powertech Technology’s ROE in this article.
Return on equity or ROE tests how effectively a company is growing its value and managing investors’ money. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for Powertech Technology.
How do I calculate return on equity?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, the ROE for Powertech Technology is:
14% = NT$9.5 billion ÷ NT$69 billion (based on trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. This means that for every NT$1 of a shareholder’s investment, the company will generate a profit of NT$0.14 for him.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to evaluate a company’s future ability to generate profits based on how much of its profits it chooses to reinvest or “retain”. Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company’s growth rate compared to companies that don’t necessarily have these characteristics.
Powertech Technology’s revenue growth and ROE 14%
At first glance, Powertech Technology appears to have a decent ROE. Moreover, his ROE for the company is very good compared to the industry average of his 9.6%. This likely laid the foundation for his modest 6.8% growth in Powertech Technology’s net profit over the past five years.
As a next step, we compared Powertech Technology’s net income growth with its industry, and we were disappointed to find that its growth rate was lower than the average industry growth rate of 17% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. It’s important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). That way, you’ll know if the stock is headed for clear blue waters or if a swamp awaits. Is 6239 worth a lot? This infographic about a company’s intrinsic value has everything you need to know.
Does Powertech Technology reinvest its profits efficiently?
Powertech Technology’s median three-year payout ratio is 58% (meaning it retains 42% of its profits), but the company has had considerable earnings growth in the past, and a high payout ratio may be hindering it. means that it has not been Its ability to grow.
Additionally, Powertech Technology has been paying dividends for at least 10 years. This shows that the company is committed to sharing profits with shareholders. Based on the latest analyst forecasts, the company’s future dividend payout ratio for the next three years is expected to remain stable at 65%. Therefore, the company’s future ROE is not expected to change much, with analysts forecasting it to be 16%.
summary
Overall, Powertech Technology appears to have some positive aspects to its business. As we saw earlier, the company’s earnings have grown quite a bit, and this is likely because the company reinvests its earnings at a fairly high rate of return. However, given its high ROE, we think the company reinvests a small portion of its profits. This can prevent your company from maximizing its growth. We researched current analyst forecasts and found that analysts expect the company to continue its recent growth streak. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company’s fundamentals? Click here to be taken to our analyst forecasts page for the company .
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis, including below, to see if Powertech Technology is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
