- South Korea
- /
- Luxury
- /
- KOSDAQ:A337930
Is Brand X Co.,Ltd.'s (KOSDAQ:337930) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Brand XLtd's (KOSDAQ:337930) stock is up by a considerable 70% 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. Particularly, we will be paying attention to Brand XLtd's ROE today.
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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
See our latest analysis for Brand XLtd
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 Brand XLtd is:
15% = ₩16b ÷ ₩109b (Based on the trailing twelve months to June 2024).
The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.15 in profit.
What Has ROE Got To Do With 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 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.
Brand XLtd's Earnings Growth And 15% ROE
To begin with, Brand XLtd seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 4.7%. This probably laid the ground for Brand XLtd's moderate 18% net income growth seen over the past five years.
As a next step, we compared Brand XLtd'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 19% in the same period.
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. 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 Brand XLtd is trading on a high P/E or a low P/E, relative to its industry.
Is Brand XLtd Efficiently Re-investing Its Profits?
In Brand XLtd's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 18% (or a retention ratio of 82%), which suggests that the company is investing most of its profits to grow its business.
Additionally, Brand XLtd has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 13% over the next three years. The fact that the company's ROE is expected to rise to 29% over the same period is explained by the drop in the payout ratio.
Summary
Overall, we are quite pleased with Brand XLtd's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
Valuation is complex, but we're here to simplify it.
Discover if Brand XLtd might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About KOSDAQ:A337930
Exceptional growth potential with excellent balance sheet.