Is Ping Ho Environmental Technology Company Co., Ltd.'s (GTSM:6771) Stock's Recent Performance A Reflection Of Its Financial Health?

By
Simply Wall St
Published
April 01, 2021
TPEX:6771
Source: Shutterstock

Ping Ho Environmental Technology Company's (GTSM:6771) stock up by 4.3% over the past week. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Ping Ho Environmental Technology Company's ROE.

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.

See our latest analysis for Ping Ho Environmental Technology Company

How Is ROE Calculated?

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 Ping Ho Environmental Technology Company is:

17% = NT$108m ÷ NT$625m (Based on the trailing twelve months to December 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$0.17 in profit.

Why Is ROE Important For 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Ping Ho Environmental Technology Company's Earnings Growth And 17% ROE

To start with, Ping Ho Environmental Technology Company's ROE looks acceptable. On comparing with the average industry ROE of 9.6% the company's ROE looks pretty remarkable. This probably laid the ground for Ping Ho Environmental Technology Company's moderate 12% net income growth seen over the past five years.

We then compared Ping Ho Environmental Technology Company'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 7.4% in the same period.

past-earnings-growth
GTSM:6771 Past Earnings Growth April 2nd 2021

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. This then helps them determine if the stock is placed for a bright or bleak future. Is 6771 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Ping Ho Environmental Technology Company Efficiently Re-investing Its Profits?

Ping Ho Environmental Technology Company has a significant three-year median payout ratio of 64%, meaning that it is left with only 36% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Along with seeing a growth in earnings, Ping Ho Environmental Technology Company only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Summary

On the whole, we feel that Ping Ho Environmental Technology Company'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. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Ping Ho Environmental Technology Company's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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