Yahoo Finance ISEC Healthcare Ltd.'s (Catalist:40T) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?
ISEC Healthcare (Catalist:40T) has had a rough three months with its share price down 5.1%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study ISEC Healthcare'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
See our latest analysis for ISEC Healthcare
How To 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 ISEC Healthcare is:
16% = S$14m ÷ S$84m (Based on the trailing twelve months to June 2024).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every SGD1 of its shareholder's investments, the company generates a profit of SGD0.16.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.
ISEC Healthcare's Earnings Growth And 16% ROE
To begin with, ISEC Healthcare seems to have a respectable ROE. On comparing with the average industry ROE of 9.0% the company's ROE looks pretty remarkable. This probably laid the ground for ISEC Healthcare's moderate 20% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that ISEC Healthcare's growth is quite high when compared to the industry average growth of 5.8% 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. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ISEC Healthcare fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is ISEC Healthcare Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 75% (or a retention ratio of 25%) for ISEC Healthcare suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Besides, ISEC Healthcare has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders.
Conclusion
Overall, we are quite pleased with ISEC Healthcare's performance. 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. Up till now, we've only made a short study of the company's growth data. You can do your own research on ISEC Healthcare 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. 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.
