Is Sunfun Info Co., Ltd.'s (GTSM:5278) Latest Stock Performance A Reflection Of Its Financial Health?

Sunfun Info (GTSM:5278) has had a great run on the share market with its stock up by a significant 21% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Sunfun Info's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Sunfun Info

How Do You Calculate Return On Equity?

ROE 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 Sunfun Info is:

44% = NT$189m ÷ NT$433m (Based on the trailing twelve months to December 2020).

The 'return' is the profit over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.44 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Sunfun Info's Earnings Growth And 44% ROE

Firstly, we acknowledge that Sunfun Info has a significantly high ROE. Secondly, even when compared to the industry average of 10% the company's ROE is quite impressive. As a result, Sunfun Info's exceptional 60% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Sunfun Info'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 16%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. What is 5278 worth today? The intrinsic value infographic in our free research report helps visualize whether 5278 is currently mispriced by the market.

Is Sunfun Info Using Its Retained Earnings Effectively?

Sunfun Info's significant three-year median payout ratio of 88% (where it is retaining only 12% 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.

Moreover, Sunfun Info is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend.

Summary

On the whole, we feel that Sunfun Info's performance has been quite good. 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. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Sunfun Info and see how it has performed in the past by looking at this FREE detailed graph 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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