Asia Neo Tech Industrial Co.,Ltd.'s (GTSM:4542) Stock Is Going Strong: Have Financials A Role To Play?

Asia Neo Tech IndustrialLtd's (GTSM:4542) stock is up by a considerable 16% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Asia Neo Tech IndustrialLtd's ROE.

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.

View our latest analysis for Asia Neo Tech IndustrialLtd

How To 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 Asia Neo Tech IndustrialLtd is:

3.4% = NT$19m ÷ NT$561m (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every NT$1 of its shareholder's investments, the company generates a profit of NT$0.03.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

A Side By Side comparison of Asia Neo Tech IndustrialLtd's Earnings Growth And 3.4% ROE

On the face of it, Asia Neo Tech IndustrialLtd's ROE is not much to talk about. Next, when compared to the average industry ROE of 9.8%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that Asia Neo Tech IndustrialLtd grew its net income at a significant rate of 35% in the last five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

We then compared Asia Neo Tech IndustrialLtd'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 2.1% in the same period.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Asia Neo Tech IndustrialLtd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Asia Neo Tech IndustrialLtd Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 71% (implying that it keeps only 29% of profits) for Asia Neo Tech IndustrialLtd suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Asia Neo Tech IndustrialLtd is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Summary

Overall, we feel that Asia Neo Tech IndustrialLtd certainly does have some positive factors to consider. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Asia Neo Tech IndustrialLtd'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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