Does P.C.B. Technologies Ltd's (TLV:PCBT) Weak Fundamentals Mean That The Market Could Correct Its Share Price?

P.C.B. Technologies (TLV:PCBT) has had a great run on the share market with its stock up by a significant 21% over the last month. However, we decided to pay close attention to its weak financials as we are doubtful that the current momentum will keep up, given the scenario. Specifically, we decided to study P.C.B. Technologies' ROE in this article.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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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 P.C.B. Technologies is:

10% = US$8.5m ÷ US$82m (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every ₪1 worth of equity, the company was able to earn ₪0.10 in profit.

See our latest analysis for P.C.B. Technologies

Why Is ROE Important For 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.

P.C.B. Technologies' Earnings Growth And 10% ROE

When you first look at it, P.C.B. Technologies' ROE doesn't look that attractive. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 17% either. Accordingly, P.C.B. Technologies' low net income growth of 4.9% over the past five years can possibly be explained by the low ROE amongst other factors.

Next, on comparing with the industry net income growth, we found that P.C.B. Technologies' reported growth was lower than the industry growth of 33% over the last few years, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about P.C.B. Technologies''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is P.C.B. Technologies Efficiently Re-investing Its Profits?

P.C.B. Technologies has a very high three-year median payout ratio of 255%, which suggests that the company is dipping into more than just its profits to pay its dividend and that shows in its low earnings growth number. This is indicative of risk. To know the 2 risks we have identified for P.C.B. Technologies visit our risks dashboard for free.

Moreover, P.C.B. Technologies has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning P.C.B. Technologies. The low ROE, combined with the fact that the company is paying out almost if not all, of its profits as dividends, has resulted in the lack or absence of growth in its earnings. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on P.C.B. Technologies and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.