Is Apex Science & Engineering Corp.'s (TPE:3052) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Apex Science & Engineering's (TPE:3052) stock increased significantly by 6.9% over the past month. 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. Specifically, we decided to study Apex Science & Engineering's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Apex Science & Engineering

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 Apex Science & Engineering is:

17% = NT$529m ÷ NT$3.1b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.17 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. 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.

Apex Science & Engineering's Earnings Growth And 17% ROE

To begin with, Apex Science & Engineering seems to have a respectable ROE. Especially when compared to the industry average of 9.4% the company's ROE looks pretty impressive. This certainly adds some context to Apex Science & Engineering's decent 12% net income growth seen over the past five years.

We then compared Apex Science & Engineering's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 19% in the same period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about Apex Science & Engineering's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Apex Science & Engineering Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 70% (or a retention ratio of 30%) for Apex Science & Engineering suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Apex Science & Engineering has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

Overall, we feel that Apex Science & Engineering certainly does have some positive factors to consider. Its earnings have grown respectably as we saw earlier, which was likely due to the company reinvesting its earnings at a pretty high rate of return. However, given the high ROE, we do think that the company is reinvesting a small portion of its profits. This could likely be preventing the company from growing to its full extent. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Apex Science & Engineering's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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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