Is The Market Rewarding Taiming Assurance Broker Co.,Ltd. (GTSM:5878) With A Negative Sentiment As A Result Of Its Mixed Fundamentals?

It is hard to get excited after looking at Taiming Assurance BrokerLtd's (GTSM:5878) recent performance, when its stock has declined 3.5% over the past three months. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Specifically, we decided to study Taiming Assurance BrokerLtd's ROE in this article.

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.

See our latest analysis for Taiming Assurance BrokerLtd

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 Taiming Assurance BrokerLtd is:

16% = NT$81m ÷ NT$519m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. So, this means that for every NT$1 of its shareholder's investments, the company generates a profit of NT$0.16.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Taiming Assurance BrokerLtd's Earnings Growth And 16% ROE

At first glance, Taiming Assurance BrokerLtd seems to have a decent ROE. Especially when compared to the industry average of 10% the company's ROE looks pretty impressive. Despite this, Taiming Assurance BrokerLtd's five year net income growth was quite flat over the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

As a next step, we compared Taiming Assurance BrokerLtd's net income growth with the industry and discovered that the industry saw an average growth of 7.4% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for 5878? You can find out in our latest intrinsic value infographic research report

Is Taiming Assurance BrokerLtd Efficiently Re-investing Its Profits?

Taiming Assurance BrokerLtd has a high three-year median payout ratio of 91% (or a retention ratio of 8.7%), meaning that the company is paying most of its profits as dividends to its shareholders. This does go some way in explaining why there's been no growth in its earnings.

Moreover, Taiming Assurance BrokerLtd has been paying dividends for seven years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

Overall, we have mixed feelings about Taiming Assurance BrokerLtd. In spite of the high ROE, the company has failed to see growth in its earnings due to it paying out most of its profits as dividend, with almost nothing left to invest into its own business. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Taiming Assurance BrokerLtd'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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