Is DeviceENG.CO.,Ltd's (KOSDAQ:187870) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

DeviceENG.CO.Ltd's (KOSDAQ:187870) stock is up by a considerable 92% 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 DeviceENG.CO.Ltd's ROE in this article.

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 DeviceENG.CO.Ltd

How Is ROE Calculated?

ROE 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 DeviceENG.CO.Ltd is:

33% = ₩31b ÷ ₩94b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every ₩1 worth of shareholders' equity, the company generated ₩0.33 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

DeviceENG.CO.Ltd's Earnings Growth And 33% ROE

First thing first, we like that DeviceENG.CO.Ltd has an impressive ROE. Secondly, even when compared to the industry average of 8.5% the company's ROE is quite impressive. As a result, DeviceENG.CO.Ltd's exceptional 31% net income growth seen over the past five years, doesn't come as a surprise.

We then compared DeviceENG.CO.Ltd's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 11% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. 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 DeviceENG.CO.Ltd is trading on a high P/E or a low P/E, relative to its industry.

Is DeviceENG.CO.Ltd Making Efficient Use Of Its Profits?

Conclusion

Overall, we are quite pleased with DeviceENG.CO.Ltd's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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. You can see the 1 risk we have identified for DeviceENG.CO.Ltd by visiting our risks dashboard for free on our platform here.

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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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