Declining Stock and Solid Fundamentals: Is The Market Wrong About Foxsemicon Integrated Technology Inc. (TWSE:3413)?

Foxsemicon Integrated Technology (TWSE:3413) has had a rough month with its share price down 13%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Foxsemicon Integrated Technology's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To 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 Foxsemicon Integrated Technology is:

17% = NT$2.6b ÷ NT$15b (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. That means that for every NT$1 worth of shareholders' equity, the company generated NT$0.17 in profit.

See our latest analysis for Foxsemicon Integrated Technology

Why Is ROE Important For 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Foxsemicon Integrated Technology's Earnings Growth And 17% ROE

To start with, Foxsemicon Integrated Technology's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 11%. Probably as a result of this, Foxsemicon Integrated Technology was able to see a decent growth of 19% over the last five years.

Next, on comparing with the industry net income growth, we found that Foxsemicon Integrated Technology's growth is quite high when compared to the industry average growth of 7.5% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for 3413? You can find out in our latest intrinsic value infographic research report.

Is Foxsemicon Integrated Technology Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 52% (or a retention ratio of 48%) for Foxsemicon Integrated Technology suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Foxsemicon Integrated Technology 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 48%. As a result, Foxsemicon Integrated Technology's ROE is not expected to change by much either, which we inferred from the analyst estimate of 18% for future ROE.

Conclusion

On the whole, we feel that Foxsemicon Integrated Technology's performance has been quite good. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. 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. 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.