Will Weakness in Feature Integration Technology Inc.'s (GTSM:4951) Stock Prove Temporary Given Strong Fundamentals?

Feature Integration Technology (GTSM:4951) has had a rough month with its share price down 5.5%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on Feature Integration Technology'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 Feature Integration Technology

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 Feature Integration Technology is:

11% = NT$58m ÷ NT$548m (Based on the trailing twelve months to June 2020).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each NT$1 of shareholders' capital it has, the company made NT$0.11 in profit.

What Has ROE Got To Do With 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Feature Integration Technology's Earnings Growth And 11% ROE

To start with, Feature Integration Technology's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 11%. This probably goes some way in explaining Feature Integration Technology's moderate 19% growth over the past five years amongst other factors.

Next, on comparing with the industry net income growth, we found that Feature Integration Technology's growth is quite high when compared to the industry average growth of 8.9% in the same period, which is great to see.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is 4951 worth today? The intrinsic value infographic in our free research report helps visualize whether 4951 is currently mispriced by the market.

Is Feature Integration Technology Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 85% (or a retention ratio of 15%) for Feature Integration Technology suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Feature Integration Technology is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

In total, we are pretty happy with Feature Integration Technology's performance. 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. Up till now, we've only made a short study of the company's growth data. To gain further insights into Feature Integration Technology's past profit growth, check out this visualization 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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