Philoptics Co., Ltd. (KOSDAQ:161580) Stock Is Going Strong But Fundamentals Look Uncertain: What Lies Ahead ?

Simply Wall St · 10/17 23:32

Most readers would already be aware that Philoptics' (KOSDAQ:161580) stock increased significantly by 19% over the past month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to Philoptics' 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.

Check out our latest analysis for Philoptics

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 Philoptics is:

3.6% = ₩8.4b ÷ ₩231b (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. So, this means that for every ₩1 of its shareholder's investments, the company generates a profit of ₩0.04.

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 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.

Philoptics' Earnings Growth And 3.6% ROE

As you can see, Philoptics' ROE looks pretty weak. Even compared to the average industry ROE of 7.1%, the company's ROE is quite dismal. However, the moderate 9.5% net income growth seen by Philoptics over the past five years is definitely a positive. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Philoptics' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 11% in the same period.

past-earnings-growth
KOSDAQ:A161580 Past Earnings Growth October 17th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Philoptics fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Philoptics Making Efficient Use Of Its Profits?

Philoptics has a very high LTM (or last twelve month) payout ratio of 233% suggesting that the company's shareholders are getting paid from more than just the company's earnings. Still the company's earnings have grown respectably. Although, the high payout ratio is certainly something we would keep an eye on if the company is not able to keep up its growth, or if business deteriorates. To know the 2 risks we have identified for Philoptics visit our risks dashboard for free.

While Philoptics has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

On the whole, we feel that the performance shown by Philoptics can be open to many interpretations. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. Up till now, we've only made a short study of the company's growth data. You can do your own research on Philoptics and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.