PropNex Limited's (SGX:OYY) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Most readers would already be aware that PropNex's (SGX:OYY) stock increased significantly by 125% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study PropNex'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.

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How Is ROE Calculated?

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 PropNex is:

53% = S$68m ÷ S$128m (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each SGD1 of shareholders' capital it has, the company made SGD0.53 in profit.

Check out our latest analysis for PropNex

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. 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. 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.

A Side By Side comparison of PropNex's Earnings Growth And 53% ROE

Firstly, we acknowledge that PropNex has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 3.7% which is quite remarkable. This probably laid the groundwork for PropNex's moderate 6.6% net income growth seen over the past five years.

We then performed a comparison between PropNex's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 6.8% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is OYY worth today? The intrinsic value infographic in our free research report helps visualize whether OYY is currently mispriced by the market.

Is PropNex Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 93% (or a retention ratio of 6.7%) for PropNex suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, PropNex has paid dividends over a period of six 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 89%. Accordingly, forecasts suggest that PropNex's future ROE will be 46% which is again, similar to the current ROE.

Summary

In total, it does look like PropNex has some positive aspects to its business. Specifically, its high ROE which likely led to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren't necessarily reaping the full benefits of the high rate of return. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.