Jung Shing Wire (TPE: 1617) stock has risen 12% in the past three months. As most know, fundamentals are what usually guide market price movements over the long term, so we decided to look at the company’s key financial metrics today to see if they have a role. to play in the recent price movement. In particular, we will pay attention to Jung Shing Wire’s ROE today.
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 other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest review for Jung Shing Wire
How is the ROE calculated?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, Jung Shing Wire’s ROE is:
8.0% = NT $ 140 million ÷ NT $ 1.8 billion (based on the last twelve months up to September 2020).
The “return” is the annual profit. This therefore means that for every NT $ 1 of the investments of its shareholder, the company generates a profit of NT $ 0.08.
Why is ROE important for profit growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate compared to companies that do not. the same characteristics.
A side-by-side comparison of Jung Shing Wire’s profit growth and 8.0% ROE
At first glance, Jung Shing Wire’s ROE doesn’t look very promising. However, its ROE is similar to the industry average of 7.9%, so we won’t dismiss the company completely. Having said that, Jung Shing Wire has shown modest net income growth of 17% over the past five years. Given the slightly low ROE, it is likely that other aspects are behind this growth. Such as – high revenue retention or effective management in place.
As a next step, we compared Jung Shing Wire’s net income growth to that of the industry, and luckily, we found that the growth observed by the company is higher than the industry average growth of 3.7%. .
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This will help them determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to check if Jung Shing Wire is trading high P / E or low P / E, relative to its industry.
Is Jung Shing Wire Using Profits Effectively?
With a three-year median payout ratio of 49% (implying that the company keeps 51% of its profits), it looks like Jung Shing Wire is reinvesting effectively so as to see respectable profit growth and pay out a well covered dividend.
In addition, Jung Shing Wire has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders.
All in all, it looks like Jung Shing Wire has some positive aspects for his business. Even despite the low rate of return, the company has achieved impressive profit growth by reinvesting heavily in its business. While we weren’t going to dismiss the business completely, what we would do is try to figure out how risky the business is to make a more informed decision around the business. To know the 2 risks we have identified for Jung Shing Wire, visit our risk dashboard for free.
If you decide to trade Jung Shing Wire, use the cheapest platform * rated # 1 overall by Barron’s, Interactive brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020
Do you have comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.