Is Tiv Taam Holdings 1 Ltd.'s (TLV:TTAM) Recent Performance Tethered To Its Attractive Financial Prospects?

Tiv Taam Holdings 1's (TLV:TTAM) stock is up by 3.6% over the past month. 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 Tiv Taam Holdings 1's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Tiv Taam Holdings 1

How To Calculate Return On Equity?

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 Tiv Taam Holdings 1 is:

28% = ₪44m ÷ ₪156m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. So, this means that for every ₪1 of its shareholder's investments, the company generates a profit of ₪0.28.

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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Tiv Taam Holdings 1's Earnings Growth And 28% ROE

To begin with, Tiv Taam Holdings 1 has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 18% the company's ROE is quite impressive. As a result, Tiv Taam Holdings 1's exceptional 26% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing Tiv Taam Holdings 1's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 22% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One 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 prospects. So, you may want to check if Tiv Taam Holdings 1 is trading on a high P/E or a low P/E, relative to its industry.

Is Tiv Taam Holdings 1 Efficiently Re-investing Its Profits?

The three-year median payout ratio for Tiv Taam Holdings 1 is 28%, which is moderately low. The company is retaining the remaining 72%. By the looks of it, the dividend is well covered and Tiv Taam Holdings 1 is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Tiv Taam Holdings 1 has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, we are pretty happy with Tiv Taam Holdings 1's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 2 risks we have identified for Tiv Taam Holdings 1 visit our risks dashboard for free.

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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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