Could The Market Be Wrong About Mytrex Health Technologies, Inc. (GTSM:4431) Given Its Attractive Financial Prospects?

Mytrex Health Technologies (GTSM:4431) has had a rough three months with its share price down 65%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on Mytrex Health Technologies' ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Mytrex Health Technologies

How To Calculate Return On Equity?

ROE 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 Mytrex Health Technologies is:

47% = NT$296m ÷ NT$631m (Based on the trailing twelve months to September 2020).

The 'return' is the profit 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$0.47.

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 Mytrex Health Technologies' Earnings Growth And 47% ROE

First thing first, we like that Mytrex Health Technologies has an impressive ROE. Secondly, even when compared to the industry average of 8.2% the company's ROE is quite impressive. Under the circumstances, Mytrex Health Technologies' considerable five year net income growth of 45% was to be expected.

As a next step, we compared Mytrex Health Technologies' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 1.7%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Mytrex Health Technologies''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Mytrex Health Technologies Making Efficient Use Of Its Profits?

The three-year median payout ratio for Mytrex Health Technologies is 49%, which is moderately low. The company is retaining the remaining 51%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Mytrex Health Technologies is reinvesting its earnings efficiently.

Moreover, Mytrex Health Technologies is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.

Summary

In total, we are pretty happy with Mytrex Health Technologies' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard would have the 4 risks we have identified for Mytrex Health 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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