V-TAC Technology Co.,Ltd. (GTSM:6229) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

V-TAC TechnologyLtd's (GTSM:6229) stock is up by a considerable 13% over the past month. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Particularly, we will be paying attention to V-TAC TechnologyLtd'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for V-TAC TechnologyLtd

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 V-TAC TechnologyLtd is:

8.8% = NT$43m ÷ NT$487m (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.09 in profit.

What Has ROE Got To Do With 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. 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.

V-TAC TechnologyLtd's Earnings Growth And 8.8% ROE

At first glance, V-TAC TechnologyLtd's ROE doesn't look very promising. Next, when compared to the average industry ROE of 11%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that V-TAC TechnologyLtd grew its net income at a significant rate of 22% in the last five years. So, there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that V-TAC TechnologyLtd's growth is quite high when compared to the industry average growth of 9.3% 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. 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 V-TAC TechnologyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is V-TAC TechnologyLtd Making Efficient Use Of Its Profits?

V-TAC TechnologyLtd's significant three-year median payout ratio of 96% (where it is retaining only 3.5% 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, V-TAC 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.

Conclusion

Overall, we have mixed feelings about V-TAC TechnologyLtd. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on V-TAC TechnologyLtd 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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