Stock Analysis

Is Syngen Biotech Co., Ltd.'s (GTSM:8279) Latest Stock Performance Being Led By Its Strong Fundamentals?

TPEX:8279
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Syngen Biotech's (GTSM:8279) stock is up by 2.4% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Syngen Biotech's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Syngen Biotech

How Do You Calculate Return On Equity?

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 Syngen Biotech is:

14% = NT$225m ÷ NT$1.6b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.14 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

A Side By Side comparison of Syngen Biotech's Earnings Growth And 14% ROE

To start with, Syngen Biotech's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.1%. This certainly adds some context to Syngen Biotech's exceptional 24% net income growth seen over the past five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Syngen Biotech's growth is quite high when compared to the industry average growth of 5.9% in the same period, which is great to see.

past-earnings-growth
GTSM:8279 Past Earnings Growth January 15th 2021

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Syngen Biotech fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Syngen Biotech Using Its Retained Earnings Effectively?

Syngen Biotech's three-year median payout ratio is a pretty moderate 32%, meaning the company retains 68% of its income. So it seems that Syngen Biotech is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, Syngen Biotech is determined to keep sharing its profits with shareholders which we infer from its long history of five years of paying a dividend.

Conclusion

On the whole, we feel that Syngen Biotech's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 2 risks we have identified for Syngen Biotech visit our risks dashboard for free.

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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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