Could The Market Be Wrong About SciVision Biotech Inc. (TPE:1786) Given Its Attractive Financial Prospects?

With its stock down 14% over the past three months, it is easy to disregard SciVision Biotech (TPE:1786). 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. Particularly, we will be paying attention to SciVision Biotech's ROE today.

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.

Check out our latest analysis for SciVision Biotech

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 SciVision Biotech is:

9.6% = NT$133m ÷ NT$1.4b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.10 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

SciVision Biotech's Earnings Growth And 9.6% ROE

To begin with, SciVision Biotech seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 11%. This probably goes some way in explaining SciVision Biotech's significant 43% net income growth over the past five years amongst other factors. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that SciVision Biotech's growth is quite high when compared to the industry average growth of 10% 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). This then helps them determine if the stock is placed for a bright or bleak future. Is SciVision Biotech fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is SciVision Biotech Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 63% (implying that it keeps only 37% of profits) for SciVision Biotech suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, SciVision Biotech has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with SciVision Biotech's 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. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of SciVision Biotech'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. 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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