YungShin Global Holding Corporation's (TPE:3705) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

It is hard to get excited after looking at YungShin Global Holding's (TPE:3705) recent performance, when its stock has declined 2.7% over the past three months. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on YungShin Global Holding's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for YungShin Global Holding

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 YungShin Global Holding is:

13% = NT$849m ÷ NT$6.5b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.13 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

YungShin Global Holding's Earnings Growth And 13% ROE

To begin with, YungShin Global Holding seems to have a respectable ROE. On comparing with the average industry ROE of 8.1% the company's ROE looks pretty remarkable. However, we are curious as to how the high returns still resulted in flat growth for YungShin Global Holding in the past five years. Therefore, there could be some other aspects that could potentially be preventing the company from growing. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

We then compared YungShin Global Holding's net income growth with the industry and found that the average industry growth rate was 5.9% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is YungShin Global Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is YungShin Global Holding Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 83% (meaning, the company retains only 17% of profits) for YungShin Global Holding suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Moreover, YungShin Global Holding has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Summary

On the whole, we do feel that YungShin Global Holding has some positive attributes. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return. Investors could have benefitted from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining a small portion of its profits. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of YungShin Global Holding'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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