Is Unitronics (1989) (R"G) Ltd's (TLV:UNIT) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Unitronics (1989) (RG) (TLV:UNIT) has had a great run on the share market with its stock up by a significant 20% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Unitronics (1989) (RG)'s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Unitronics (1989) (RG)

How Is ROE Calculated?

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 Unitronics (1989) (RG) is:

54% = ₪45m ÷ ₪82m (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each ₪1 of shareholders' capital it has, the company made ₪0.54 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Unitronics (1989) (RG)'s Earnings Growth And 54% ROE

First thing first, we like that Unitronics (1989) (RG) has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 15% also doesn't go unnoticed by us. As a result, Unitronics (1989) (RG)'s exceptional 33% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Unitronics (1989) (RG)'s net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 33% 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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Unitronics (1989) (RG)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Unitronics (1989) (RG) Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 100% (implying that it keeps only -0.4% of profits) for Unitronics (1989) (RG) suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Unitronics (1989) (RG) has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we feel that Unitronics (1989) (RG) certainly does have some positive factors to consider. Especially the growth in earnings which was backed by an impressive ROE. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Unitronics (1989) (RG) 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.