Is One Software Technologies Ltd's (TLV:ONE) Latest Stock Performance A Reflection Of Its Financial Health?

By
Simply Wall St
Published
January 10, 2022
TASE:ONE
Source: Shutterstock

Most readers would already be aware that One Software Technologies' (TLV:ONE) stock increased significantly by 14% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study One Software Technologies' ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for One Software Technologies

How Do You 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 One Software Technologies is:

25% = ₪134m ÷ ₪544m (Based on the trailing twelve months to September 2021).

The 'return' is the income the business earned over the last year. So, this means that for every ₪1 of its shareholder's investments, the company generates a profit of ₪0.25.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

A Side By Side comparison of One Software Technologies' Earnings Growth And 25% ROE

To begin with, One Software Technologies has a pretty high ROE which is interesting. Further, even comparing with the industry average if 21%, the company's ROE is quite respectable. So, One Software Technologies' moderate 13% growth over the past five years was probably backed by the high ROE.

Next, on comparing One Software Technologies' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 12% in the same period.

past-earnings-growth
TASE:ONE Past Earnings Growth January 10th 2022

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. Is One Software Technologies fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is One Software Technologies Efficiently Re-investing Its Profits?

While One Software Technologies has a three-year median payout ratio of 66% (which means it retains 34% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, One Software Technologies has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with One Software Technologies' 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. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on One Software Technologies and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.