Samyang Packaging Corporation's (KRX:272550) Stock Has Fared Decently: Is the Market Following Strong Financials?

Most readers would already know that Samyang Packaging's (KRX:272550) stock increased by 4.0% 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 Samyang Packaging's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Samyang Packaging

How Is ROE Calculated?

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 Samyang Packaging is:

13% = ₩40b ÷ ₩310b (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.13 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. 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 Samyang Packaging's Earnings Growth And 13% ROE

At first glance, Samyang Packaging seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 6.4%. This probably laid the ground for Samyang Packaging's moderate 14% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Samyang Packaging compares quite favourably to the industry average, which shows a decline of 0.7% in the same period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. 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 Samyang Packaging is trading on a high P/E or a low P/E, relative to its industry.

Is Samyang Packaging Making Efficient Use Of Its Profits?

Conclusion

On the whole, we feel that Samyang Packaging's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard will have the 1 risk we have identified for Samyang Packaging.

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This article by Simply Wall St is general in nature. 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.
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