Uni-President Enterprises Corp.'s (TPE:1216) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that Uni-President Enterprises' (TPE:1216) stock increased by 1.9% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Uni-President Enterprises' 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.

Check out our latest analysis for Uni-President Enterprises

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 Uni-President Enterprises is:

17% = NT$30b ÷ NT$176b (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$0.17.

What Is The Relationship Between ROE And 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. 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.

Uni-President Enterprises' Earnings Growth And 17% ROE

To begin with, Uni-President Enterprises seems to have a respectable ROE. Especially when compared to the industry average of 11% the company's ROE looks pretty impressive. This certainly adds some context to Uni-President Enterprises' decent 7.1% net income growth seen over the past five years.

Next, on comparing Uni-President Enterprises' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 7.3% in the same period.

Earnings growth is a huge factor in stock valuation. 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. Is Uni-President Enterprises fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Uni-President Enterprises Making Efficient Use Of Its Profits?

While Uni-President Enterprises has a three-year median payout ratio of 77% (which means it retains 23% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Uni-President Enterprises is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. 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 75%. Accordingly, forecasts suggest that Uni-President Enterprises' future ROE will be 19% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Uni-President Enterprises' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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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