Intellian Technologies, Inc. (KOSDAQ:189300) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Intellian Technologies (KOSDAQ:189300) has had a great run on the share market with its stock up by a significant 79% over the last three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study Intellian Technologies' 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Intellian Technologies

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Intellian Technologies is:

2.9% = ₩2.4b ÷ ₩82b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every ₩1 worth of equity, the company was able to earn ₩0.03 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Intellian Technologies' Earnings Growth And 2.9% ROE

It is hard to argue that Intellian Technologies' ROE is much good in and of itself. Even compared to the average industry ROE of 6.5%, the company's ROE is quite dismal. Therefore, the disappointing ROE therefore provides a background to Intellian Technologies' very little net income growth of 3.1% over the past five years.

As a next step, we compared Intellian Technologies' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 6.6% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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. Is Intellian Technologies fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Intellian Technologies Making Efficient Use Of Its Profits?

A low three-year median payout ratio of 20% (implying that the company retains the remaining 80% of its income) suggests that Intellian Technologies is retaining most of its profits. This should be reflected in its earnings growth number, but that's not the case. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Additionally, Intellian Technologies started paying a dividend only recently. So it looks like the management must have perceived that shareholders favor dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 7.5% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 13%, over the same period.

Conclusion

Overall, we have mixed feelings about Intellian Technologies. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 3 risks we have identified for Intellian Technologies.

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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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