Stock Analysis

Sonix Technology Co.,Ltd.'s (TPE:5471) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

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TWSE:5471
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Sonix TechnologyLtd's (TPE:5471) stock is up by a considerable 49% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Sonix 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 Sonix TechnologyLtd is:

26% = NT$1.0b ÷ NT$3.9b (Based on the trailing twelve months to December 2020).

The 'return' is the profit over the last twelve months. So, this means that for every NT$1 of its shareholder's investments, the company generates a profit of NT$0.26.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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 26% ROE

To begin with, Sonix TechnologyLtd has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. As a result, Sonix TechnologyLtd's exceptional 22% net income growth seen over the past five years, doesn't come as a surprise.

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 10%.

past-earnings-growth
TSEC:5471 Past Earnings Growth March 18th 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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Sonix TechnologyLtd fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Sonix TechnologyLtd Making Efficient Use Of Its Profits?

Sonix TechnologyLtd's significant three-year median payout ratio of 96% (where it is retaining only 4.2% 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.

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.

Summary

On the whole, we do feel that Sonix TechnologyLtd has some positive attributes. 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. So it may be worth checking this free detailed graph of Sonix TechnologyLtd's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.

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