Has Korea Cable T.V Chung-Buk System Co., Ltd.'s (KOSDAQ:066790) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Korea Cable T.V Chung-Buk System (KOSDAQ:066790) has had a great run on the share market with its stock up by a significant 16% over the last week. 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. Particularly, we will be paying attention to Korea Cable T.V Chung-Buk System's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Korea Cable T.V Chung-Buk System

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 Korea Cable T.V Chung-Buk System is:

6.0% = ₩2.2b ÷ ₩36b (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.06 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 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.

Korea Cable T.V Chung-Buk System's Earnings Growth And 6.0% ROE

On the face of it, Korea Cable T.V Chung-Buk System's ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.5%. Moreover, we are quite pleased to see that Korea Cable T.V Chung-Buk System's net income grew significantly at a rate of 66% over the last five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Korea Cable T.V Chung-Buk System's growth is quite high when compared to the industry average growth of 2.8% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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 Korea Cable T.V Chung-Buk System's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Korea Cable T.V Chung-Buk System Using Its Retained Earnings Effectively?

Korea Cable T.V Chung-Buk System doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

In total, it does look like Korea Cable T.V Chung-Buk System has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 3 risks we have identified for Korea Cable T.V Chung-Buk System.

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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.