Ma Kuang Healthcare Holding Limited's (GTSM:4139) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Ma Kuang Healthcare Holding (GTSM:4139) has had a rough month with its share price down 7.7%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on Ma Kuang Healthcare Holding's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Ma Kuang Healthcare Holding

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Ma Kuang Healthcare Holding is:

25% = NT$149m ÷ NT$608m (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. So, this means that for every NT$1 of its shareholder's investments, the company generates a profit of NT$0.25.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Ma Kuang Healthcare Holding's Earnings Growth And 25% ROE

Firstly, we acknowledge that Ma Kuang Healthcare Holding has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 8.1% also doesn't go unnoticed by us. Under the circumstances, Ma Kuang Healthcare Holding's considerable five year net income growth of 72% was to be expected.

As a next step, we compared Ma Kuang Healthcare Holding's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 9.7%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Ma Kuang Healthcare Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Ma Kuang Healthcare Holding Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 52% (implying that it keeps only 48% of profits) for Ma Kuang Healthcare Holding suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Along with seeing a growth in earnings, Ma Kuang Healthcare Holding only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

On the whole, we feel that Ma Kuang Healthcare Holding's performance has been quite good. 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. You can do your own research on Ma Kuang Healthcare Holding 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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