Stock Analysis

Sonix Technology Co.,Ltd.'s (TPE:5471) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

  •  Updated
TWSE:5471
Source: Shutterstock

With its stock down 12% over the past three months, it is easy to disregard Sonix TechnologyLtd (TPE:5471). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Sonix TechnologyLtd's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Sonix TechnologyLtd

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 Sonix TechnologyLtd is:

24% = NT$849m ÷ NT$3.5b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each NT$1 of shareholders' capital it has, the company made NT$0.24 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.

Sonix TechnologyLtd's Earnings Growth And 24% ROE

Firstly, we acknowledge that Sonix TechnologyLtd has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 11% which is quite remarkable. Probably as a result of this, Sonix TechnologyLtd was able to see a decent net income growth of 13% over the last five years.

As a next step, we compared Sonix TechnologyLtd'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 8.9%.

past-earnings-growth
TSEC:5471 Past Earnings Growth December 18th 2020

Earnings growth is an important metric to consider when valuing a stock. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Sonix TechnologyLtd is trading on a high P/E or a low P/E, relative to its industry.

Is Sonix TechnologyLtd Using Its Retained Earnings Effectively?

Sonix TechnologyLtd has a significant three-year median payout ratio of 99%, meaning that it is left with only 1.4% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Moreover, Sonix TechnologyLtd 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.

Conclusion

In total, it does look like Sonix TechnologyLtd has some positive aspects to its business. Especially the growth in earnings which was backed by an impressive ROE. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Sonix TechnologyLtd and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

If you decide to trade Sonix TechnologyLtd, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Sonix TechnologyLtd is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About TWSE:5471

Sonix TechnologyLtd

Sonix Technology Co.,Ltd. develops, designs, manufactures, and trades in semiconductors in Taiwan and internationally.

Flawless balance sheet and good value.

Stock Analysis

No articles found