Taiwan Hopax Chems.Mfg.Co.,Ltd.'s (GTSM:6509) Stock Is Going Strong: Is the Market Following Fundamentals?

Most readers would already be aware that Taiwan Hopax Chems.Mfg.Co.Ltd's (GTSM:6509) stock increased significantly by 6.3% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Taiwan Hopax Chems.Mfg.Co.Ltd's ROE in this article.

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.

Check out our latest analysis for Taiwan Hopax Chems.Mfg.Co.Ltd

How Do You 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 Taiwan Hopax Chems.Mfg.Co.Ltd is:

10% = NT$284m ÷ NT$2.8b (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$0.10.

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.

A Side By Side comparison of Taiwan Hopax Chems.Mfg.Co.Ltd's Earnings Growth And 10% ROE

To begin with, Taiwan Hopax Chems.Mfg.Co.Ltd seems to have a respectable ROE. On comparing with the average industry ROE of 7.7% the company's ROE looks pretty remarkable. This probably laid the ground for Taiwan Hopax Chems.Mfg.Co.Ltd's moderate 20% net income growth seen over the past five years.

As a next step, we compared Taiwan Hopax Chems.Mfg.Co.Ltd'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 1.0%.

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. If you're wondering about Taiwan Hopax Chems.Mfg.Co.Ltd's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Taiwan Hopax Chems.Mfg.Co.Ltd Making Efficient Use Of Its Profits?

Taiwan Hopax Chems.Mfg.Co.Ltd has a significant three-year median payout ratio of 54%, meaning that it is left with only 46% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Taiwan Hopax Chems.Mfg.Co.Ltd has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Taiwan Hopax Chems.Mfg.Co.Ltd'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. 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 Taiwan Hopax Chems.Mfg.Co.Ltd'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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