Is Bizlink Holding Inc.'s (TWSE:3665) Recent Stock Performance Tethered To Its Strong Fundamentals?

Bizlink Holding's (TWSE:3665) stock is up by a considerable 24% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Bizlink Holding's ROE.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Bizlink Holding

How To Calculate Return On Equity?

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 Bizlink Holding is:

11% = NT$2.8b ÷ NT$26b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.11 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Bizlink Holding's Earnings Growth And 11% ROE

To start with, Bizlink Holding's ROE looks acceptable. Even when compared to the industry average of 9.0% the company's ROE looks quite decent. Consequently, this likely laid the ground for the decent growth of 13% seen over the past five years by Bizlink Holding.

We then performed a comparison between Bizlink Holding's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 13% in the same 5-year 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 Bizlink Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bizlink Holding Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 52% (or a retention ratio of 48%) for Bizlink Holding suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Bizlink Holding 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 55%. Still, forecasts suggest that Bizlink Holding's future ROE will rise to 19% even though the the company's payout ratio is not expected to change by much.

Conclusion

In total, we are pretty happy with Bizlink Holding's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.