Suny Cellular Communication Ltd's (TLV:SNCM) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Suny Cellular Communication's (TLV:SNCM) stock is up by a considerable 32% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Suny Cellular Communication's 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.

Check out our latest analysis for Suny Cellular Communication

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 Suny Cellular Communication is:

16% = ₪40m ÷ ₪254m (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. So, this means that for every ₪1 of its shareholder's investments, the company generates a profit of ₪0.16.

Why Is ROE Important For 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.

A Side By Side comparison of Suny Cellular Communication's Earnings Growth And 16% ROE

At first glance, Suny Cellular Communication seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 15%. This probably goes some way in explaining Suny Cellular Communication's moderate 15% growth over the past five years amongst other factors.

Next, on comparing with the industry net income growth, we found that Suny Cellular Communication's 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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Suny Cellular Communication's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Suny Cellular Communication Making Efficient Use Of Its Profits?

Suny Cellular Communication has a significant three-year median payout ratio of 98%, meaning that it is left with only 1.5% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Suny Cellular Communication has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we do feel that Suny Cellular Communication has some positive attributes. Its earnings have grown respectably as we saw earlier, probably due to its high returns. However, it does reinvest little to almost none of its profits, so we wonder what effect this could have on its future growth prospects. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Suny Cellular Communication's past profit growth, check out this visualization 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.