Do Its Financials Have Any Role To Play In Driving Kinsus Interconnect Technology Corp.'s (TWSE:3189) Stock Up Recently?

Kinsus Interconnect Technology's (TWSE:3189) stock is up by a considerable 13% over the past month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Kinsus Interconnect Technology's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Kinsus Interconnect 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 Kinsus Interconnect Technology is:

3.5% = NT$1.3b ÷ NT$39b (Based on the trailing twelve months to March 2024).

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$0.03.

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.

Kinsus Interconnect Technology's Earnings Growth And 3.5% ROE

On the face of it, Kinsus Interconnect Technology's ROE is not much to talk about. Next, when compared to the average industry ROE of 10%, the company's ROE leaves us feeling even less enthusiastic. Despite this, surprisingly, Kinsus Interconnect Technology saw an exceptional 43% net income growth over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Kinsus Interconnect Technology'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 14%.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Kinsus Interconnect Technology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Kinsus Interconnect Technology Using Its Retained Earnings Effectively?

The three-year median payout ratio for Kinsus Interconnect Technology is 47%, which is moderately low. The company is retaining the remaining 53%. By the looks of it, the dividend is well covered and Kinsus Interconnect Technology is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Kinsus Interconnect Technology 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 39%. Regardless, the future ROE for Kinsus Interconnect Technology is predicted to rise to 8.9% despite there being not much change expected in its payout ratio.

Summary

Overall, we feel that Kinsus Interconnect Technology certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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