Global Brands Manufacture Ltd.'s (TWSE:6191) Stock Is Going Strong: Is the Market Following Fundamentals?

Most readers would already be aware that Global Brands Manufacture's (TWSE:6191) stock increased significantly by 6.6% over the past week. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Global Brands Manufacture'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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Global Brands Manufacture

How Do You Calculate Return On Equity?

ROE 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 Global Brands Manufacture is:

14% = NT$3.2b ÷ NT$22b (Based on the trailing twelve months to March 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$0.14 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. 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.

Global Brands Manufacture's Earnings Growth And 14% ROE

To start with, Global Brands Manufacture's ROE looks acceptable. On comparing with the average industry ROE of 8.5% the company's ROE looks pretty remarkable. Probably as a result of this, Global Brands Manufacture was able to see an impressive net income growth of 24% over the last five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

We then compared Global Brands Manufacture'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 12% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Global Brands Manufacture's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Global Brands Manufacture Using Its Retained Earnings Effectively?

Global Brands Manufacture's three-year median payout ratio is a pretty moderate 32%, meaning the company retains 68% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Global Brands Manufacture is reinvesting its earnings efficiently.

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

Summary

On the whole, we feel that Global Brands Manufacture's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard will have the 1 risk we have identified for Global Brands Manufacture.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com