INFINITT Healthcare Co., Ltd.'s (KOSDAQ:071200) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Most readers would already be aware that INFINITT Healthcare's (KOSDAQ:071200) stock increased significantly by 14% over the past three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to INFINITT Healthcare'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for INFINITT Healthcare

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for INFINITT Healthcare is:

2.9% = ₩2.6b ÷ ₩88b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.03 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

INFINITT Healthcare's Earnings Growth And 2.9% ROE

It is hard to argue that INFINITT Healthcare's ROE is much good in and of itself. Not just that, even compared to the industry average of 8.2%, the company's ROE is entirely unremarkable. Therefore, INFINITT Healthcare's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared INFINITT Healthcare's performance with the industry and found thatINFINITT Healthcare's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 0.05% in the same period, which is a slower than the company.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about INFINITT Healthcare's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is INFINITT Healthcare Using Its Retained Earnings Effectively?

Conclusion

Overall, we have mixed feelings about INFINITT Healthcare. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into INFINITT Healthcare's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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