Stock Analysis

Is Cuckoo Holdings Co., Ltd.'s (KRX:192400) Latest Stock Performance A Reflection Of Its Financial Health?

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KOSE:A192400
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Most readers would already be aware that Cuckoo Holdings' (KRX:192400) stock increased significantly by 24% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Cuckoo Holdings' ROE.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Cuckoo Holdings

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 Cuckoo Holdings is:

14% = ₩103b ÷ ₩743b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. So, this means that for every ₩1 of its shareholder's investments, the company generates a profit of ₩0.14.

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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Cuckoo Holdings' Earnings Growth And 14% ROE

To start with, Cuckoo Holdings' ROE looks acceptable. Especially when compared to the industry average of 7.1% the company's ROE looks pretty impressive. This certainly adds some context to Cuckoo Holdings' decent 7.2% net income growth seen over the past five years.

Given that the industry shrunk its earnings at a rate of 2.1% in the same period, the net income growth of the company is quite impressive.

past-earnings-growth
KOSE:A192400 Past Earnings Growth February 17th 2021

Earnings growth is a huge factor in stock valuation. 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 Cuckoo Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Cuckoo Holdings Making Efficient Use Of Its Profits?

In Cuckoo Holdings' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 21% (or a retention ratio of 79%), which suggests that the company is investing most of its profits to grow its business.

While Cuckoo Holdings has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we feel that Cuckoo Holdings' performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard will have the 1 risk we have identified for Cuckoo Holdings.

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About KOSE:A192400

Cuckoo Holdings

Cuckoo Holdings Co., Ltd., together with its subsidiaries, manufactures and sells kitchen appliances.

Flawless balance sheet average dividend payer.

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