Is Celxpert Energy Corporation's (GTSM:3323) Latest Stock Performance A Reflection Of Its Financial Health?

Celxpert Energy (GTSM:3323) has had a great run on the share market with its stock up by a significant 18% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Celxpert Energy'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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Celxpert Energy

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Celxpert Energy is:

12% = NT$281m ÷ NT$2.3b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every NT$1 worth of equity, the company was able to earn NT$0.12 in profit.

Why Is ROE Important For 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.

A Side By Side comparison of Celxpert Energy's Earnings Growth And 12% ROE

To start with, Celxpert Energy's ROE looks acceptable. Especially when compared to the industry average of 9.9% the company's ROE looks pretty impressive. Probably as a result of this, Celxpert Energy was able to see a decent growth of 18% over the last five years.

Next, on comparing with the industry net income growth, we found that Celxpert Energy's growth is quite high when compared to the industry average growth of 9.2% in the same period, which is great to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Celxpert Energy fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Celxpert Energy Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 72% (or a retention ratio of 28%) for Celxpert Energy suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Celxpert Energy has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, we are pretty happy with Celxpert Energy's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Celxpert Energy's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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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