Declining Stock and Decent Financials: Is The Market Wrong About Airmate (Cayman) International Co Limited (TPE:1626)?

With its stock down 11% over the past three months, it is easy to disregard Airmate (Cayman) International Co (TPE:1626). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Airmate (Cayman) International Co's ROE today.

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.

Check out our latest analysis for Airmate (Cayman) International Co

How Is ROE Calculated?

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 Airmate (Cayman) International Co is:

3.6% = NT$107m ÷ NT$3.0b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.04 in profit.

What Has ROE Got To Do With 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Airmate (Cayman) International Co's Earnings Growth And 3.6% ROE

On the face of it, Airmate (Cayman) International Co's ROE is not much to talk about. Next, when compared to the average industry ROE of 13%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Airmate (Cayman) International Co was able to grow its net income considerably, at a rate of 25% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Airmate (Cayman) International Co's growth is quite high when compared to the industry average growth of 2.8% in the same period, which is great to see.

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. Is Airmate (Cayman) International Co fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Airmate (Cayman) International Co Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 60% (implying that it keeps only 40% of profits) for Airmate (Cayman) International Co suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Airmate (Cayman) International Co has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we do feel that Airmate (Cayman) International Co has some positive attributes. 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. You can do your own research on Airmate (Cayman) International Co and see how it has performed in the past by looking at this FREE detailed graph 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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