Is USERJOY Technology Co.,Ltd.'s(GTSM:3546) Recent Stock Performance Tethered To Its Strong Fundamentals?

USERJOY TechnologyLtd (GTSM:3546) has had a great run on the share market with its stock up by a significant 41% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on USERJOY TechnologyLtd's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for USERJOY TechnologyLtd

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 USERJOY TechnologyLtd is:

22% = NT$279m ÷ NT$1.3b (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.22 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

USERJOY TechnologyLtd's Earnings Growth And 22% ROE

To begin with, USERJOY TechnologyLtd has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 15% the company's ROE is quite impressive. So, the substantial 29% net income growth seen by USERJOY TechnologyLtd over the past five years isn't overly surprising.

Next, on comparing USERJOY TechnologyLtd's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 24% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if USERJOY TechnologyLtd is trading on a high P/E or a low P/E, relative to its industry.

Is USERJOY TechnologyLtd Making Efficient Use Of Its Profits?

USERJOY TechnologyLtd's significant three-year median payout ratio of 67% (where it is retaining only 33% 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.

Additionally, USERJOY TechnologyLtd has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

On the whole, we feel that USERJOY TechnologyLtd'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. 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 USERJOY TechnologyLtd'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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