Stock Analysis

New Power Plasma Co.,Ltd (KOSDAQ:144960) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

KOSDAQ:A144960
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It is hard to get excited after looking at New Power PlasmaLtd's (KOSDAQ:144960) recent performance, when its stock has declined 8.4% over the past three months. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study New Power PlasmaLtd's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for New Power PlasmaLtd

How Do You 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 New Power PlasmaLtd is:

10% = ₩15b ÷ ₩142b (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 ₩0.10 in profit.

Why Is ROE Important For 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.

New Power PlasmaLtd's Earnings Growth And 10% ROE

At first glance, New Power PlasmaLtd's ROE doesn't look very promising. Although a closer study shows that the company's ROE is higher than the industry average of 8.5% which we definitely can't overlook. Having said that, New Power PlasmaLtd's net income growth over the past five years is more or less flat. Bear in mind, the company does have a slightly low ROE. It is just that the industry ROE is lower. Therefore, the low to flat growth in earnings could also be the result of this.

We then compared New Power PlasmaLtd's net income growth with the industry and found that the average industry growth rate was 11% in the same period.

past-earnings-growth
KOSDAQ:A144960 Past Earnings Growth December 15th 2020

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is New Power PlasmaLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is New Power PlasmaLtd Using Its Retained Earnings Effectively?

New Power PlasmaLtd doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business. However, this doesn't explain why the company hasn't seen any growth. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Conclusion

In total, it does look like New Power PlasmaLtd has some positive aspects to its business. Yet, the low earnings growth is a bit concerning, especially given that the company has a respectable rate of return and is reinvesting a huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. Up till now, we've only made a short study of the company's growth data. To gain further insights into New Power PlasmaLtd's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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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