Are Strong Financial Prospects The Force That Is Driving The Momentum In Eugene Technology Co.,Ltd.'s KOSDAQ:084370) Stock?

Most readers would already be aware that Eugene TechnologyLtd's (KOSDAQ:084370) stock increased significantly by 37% 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. Specifically, we decided to study Eugene TechnologyLtd's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Do You 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 Eugene TechnologyLtd is:

15% = ₩67b ÷ ₩446b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₩1 of shareholders' capital it has, the company made ₩0.15 in profit.

Check out our latest analysis for Eugene TechnologyLtd

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Eugene TechnologyLtd's Earnings Growth And 15% ROE

To start with, Eugene TechnologyLtd's ROE looks acceptable. Especially when compared to the industry average of 6.9% the company's ROE looks pretty impressive. Probably as a result of this, Eugene TechnologyLtd was able to see an impressive net income growth of 20% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Eugene TechnologyLtd's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 5.4%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is A084370 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Eugene TechnologyLtd Making Efficient Use Of Its Profits?

Eugene TechnologyLtd's three-year median payout ratio to shareholders is 8.0%, which is quite low. This implies that the company is retaining 92% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, Eugene TechnologyLtd has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 9.1%. Accordingly, forecasts suggest that Eugene TechnologyLtd's future ROE will be 15% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Eugene TechnologyLtd's performance. 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.