Is Sunjuice Holdings Co., Limited's (TPE:1256) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Sunjuice Holdings' (TPE:1256) stock increased significantly by 5.2% over the past week. 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 Sunjuice Holdings' 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Sunjuice Holdings

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 Sunjuice Holdings is:

29% = NT$701m ÷ NT$2.4b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax 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$0.29 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Sunjuice Holdings' Earnings Growth And 29% ROE

First thing first, we like that Sunjuice Holdings has an impressive ROE. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. Under the circumstances, Sunjuice Holdings' considerable five year net income growth of 24% was to be expected.

Next, on comparing with the industry net income growth, we found that Sunjuice Holdings' growth is quite high when compared to the industry average growth of 7.3% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Sunjuice Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Sunjuice Holdings Efficiently Re-investing Its Profits?

Sunjuice Holdings' three-year median payout ratio is a pretty moderate 41%, meaning the company retains 59% of its income. So it seems that Sunjuice Holdings is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, Sunjuice Holdings is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Summary

Overall, we are quite pleased with Sunjuice Holdings' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth.

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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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