Stock Analysis

Are TegoScience Inc.'s (KOSDAQ:191420) Mixed Financials The Reason For Its Gloomy Performance on The Stock Market?

KOSDAQ:A191420
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TegoScience (KOSDAQ:191420) has had a rough month with its share price down 6.9%. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Particularly, we will be paying attention to TegoScience's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for TegoScience

How To Calculate Return On Equity?

Return on equity 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 TegoScience is:

3.6% = ₩1.7b ÷ ₩49b (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every ₩1 worth of equity, the company was able to earn ₩0.04 in profit.

Why Is ROE Important For 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. 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.

TegoScience's Earnings Growth And 3.6% ROE

As you can see, TegoScience's ROE looks pretty weak. Even compared to the average industry ROE of 6.1%, the company's ROE is quite dismal. Hence, the flat earnings seen by TegoScience over the past five years could probably be the result of it having a lower ROE.

We then compared TegoScience's net income growth with the industry and found that the average industry growth rate was 13% in the same period.

past-earnings-growth
KOSDAQ:A191420 Past Earnings Growth February 17th 2021

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about TegoScience's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is TegoScience Making Efficient Use Of Its Profits?

Summary

In total, we're a bit ambivalent about TegoScience's performance. 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. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of TegoScience's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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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