Jarllytec Co. , Ltd. (GTSM:3548) On An Uptrend: Could Fundamentals Be Driving The Stock?

Jarllytec's (GTSM:3548) stock up by 5.2% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Jarllytec's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Jarllytec

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 Jarllytec is:

8.4% = NT$334m ÷ NT$4.0b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each NT$1 of shareholders' capital it has, the company made NT$0.08 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Jarllytec's Earnings Growth And 8.4% ROE

On the face of it, Jarllytec's ROE is not much to talk about. However, its ROE is similar to the industry average of 9.9%, so we won't completely dismiss the company. Even so, Jarllytec has shown a fairly decent growth in its net income which grew at a rate of 9.6%. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then performed a comparison between Jarllytec's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 9.2% in the same period.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Jarllytec fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Jarllytec Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 51% (or a retention ratio of 49%) for Jarllytec suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Jarllytec has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we do feel that Jarllytec has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. Up till now, we've only made a short study of the company's growth data. You can do your own research on Jarllytec and see how it has performed in the past by looking at this FREE detailed graph 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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