Global Mixed-Mode Technology Inc.'s (TPE:8081) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Global Mixed-Mode Technology's (TPE:8081) stock up by 5.3% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Global Mixed-Mode Technology'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.

See our latest analysis for Global Mixed-Mode Technology

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 Global Mixed-Mode Technology is:

19% = NT$953m ÷ NT$4.9b (Based on the trailing twelve months to September 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$0.19.

What Has ROE Got To Do With 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.

A Side By Side comparison of Global Mixed-Mode Technology's Earnings Growth And 19% ROE

At first glance, Global Mixed-Mode Technology seems to have a decent ROE. Especially when compared to the industry average of 11% the company's ROE looks pretty impressive. Probably as a result of this, Global Mixed-Mode Technology was able to see a decent growth of 18% over the last five years.

We then compared Global Mixed-Mode Technology's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 8.9% in the same period.

Earnings growth is an important metric to consider when valuing a stock. 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 Global Mixed-Mode Technology fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Global Mixed-Mode Technology Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 77% (or a retention ratio of 23%) for Global Mixed-Mode Technology suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Global Mixed-Mode Technology has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 86% of its profits over the next three years. Accordingly, forecasts suggest that Global Mixed-Mode Technology's future ROE will be 20% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Global Mixed-Mode Technology's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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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