Ma Kuang Healthcare Holding Limited's (GTSM:4139) Stock Been Rising: Are Strong Financials Guiding The Market?

Ma Kuang Healthcare Holding's (GTSM:4139) stock up by 3.7% over the past month. 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. Particularly, we will be paying attention to Ma Kuang Healthcare Holding's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Ma Kuang Healthcare Holding

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 Ma Kuang Healthcare Holding is:

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

The 'return' is the yearly profit. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.25 in profit.

Why Is ROE Important For 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.

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

To begin with, Ma Kuang Healthcare Holding has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 8.1% which is quite remarkable. So, the substantial 72% net income growth seen by Ma Kuang Healthcare Holding over the past five years isn't overly surprising.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Ma Kuang Healthcare Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Ma Kuang Healthcare Holding Using Its Retained Earnings Effectively?

Ma Kuang Healthcare Holding's significant three-year median payout ratio of 52% (where it is retaining only 48% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to 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

In total, we are pretty happy with Ma Kuang Healthcare Holding's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Ma Kuang Healthcare Holding's past profit growth, check out this visualization 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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