Great Wall Enterprise Co., Ltd.'s (TWSE:1210) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Great Wall Enterprise (TWSE:1210) has had a rough week with its share price down 4.8%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Great Wall Enterprise's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Great Wall Enterprise

How To Calculate Return On Equity?

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 Great Wall Enterprise is:

15% = NT$4.8b ÷ NT$32b (Based on the trailing twelve months to December 2023).

The 'return' is the income the business earned 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$0.15 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. 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. 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.

Great Wall Enterprise's Earnings Growth And 15% ROE

To begin with, Great Wall Enterprise seems to have a respectable ROE. On comparing with the average industry ROE of 9.3% the company's ROE looks pretty remarkable. Probably as a result of this, Great Wall Enterprise was able to see a decent growth of 7.4% over the last five years.

Next, on comparing Great Wall Enterprise's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 6.9% over the last few years.

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. Is Great Wall Enterprise fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Great Wall Enterprise Using Its Retained Earnings Effectively?

While Great Wall Enterprise has a three-year median payout ratio of 63% (which means it retains 37% 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.

Additionally, Great Wall Enterprise has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Great Wall Enterprise's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Great Wall Enterprise's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.