Uni-President Enterprises Corp.'s (TPE:1216) Stock Has Fared Decently: Is the Market Following Strong Financials?

Most readers would already know that Uni-President Enterprises' (TPE:1216) stock increased by 7.2% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Uni-President Enterprises' ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Uni-President Enterprises

How Is ROE Calculated?

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 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. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.17 in profit.

What Has ROE Got To Do With Earnings Growth?

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

A Side By Side comparison of Uni-President Enterprises' Earnings Growth And 17% ROE

At first glance, Uni-President Enterprises seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 11%. 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 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. Doing so will help them establish if the stock's future looks promising or ominous. Is Uni-President Enterprises fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Uni-President Enterprises Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 77% (or a retention ratio of 23%) for Uni-President Enterprises suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Uni-President Enterprises has paid dividends over a period of nine 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 74%. Accordingly, forecasts suggest that Uni-President Enterprises' future ROE will be 18% which is again, similar to the current ROE.

Summary

In total, we are pretty happy 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. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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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