Syncomm Technology (TWSE:3150) has faced challenges lately, with its stock price dropping 13% over the past three months. To understand this decline, we took a closer look at its key financial metrics, especially the company’s Return on Equity (ROE).
ROE measures how well a company grows its value and manages investors’ money. In simple terms, it helps assess how profitable a company is compared to its equity capital.
How Is ROE Calculated?
ROE is calculated using the following formula:
Return on Equity = Net Profit ÷ Shareholders’ Equity
For Syncomm Technology, the ROE comes out to:
2.3% = NT$16 million ÷ NT$702 million (based on the trailing twelve months ending September 2024).
This means that for every NT$1 of equity, the company earned NT$0.02 in profit last year.
What Does ROE Mean for Earnings Growth?
We’ve established that ROE reflects a company’s profitability. If a company keeps more of its profits for reinvestment, it can potentially achieve better future growth. Generally, a higher ROE combined with strong profit retention leads to greater growth.
Syncomm Technology’s Earnings Growth and 2.3% ROE
Syncomm Technology’s current ROE is quite low. Compared to the industry average of 11%, it falls short. This may explain the 14% decline in net income over the past five years. Other factors could also be at play, such as poor capital allocation or a high payout ratio.
In contrast, the industry has experienced a 9.9% earnings growth rate during the same period, which raises concerns about Syncomm Technology’s performance.
Earnings growth impacts stock valuation significantly. Investors need to gauge whether Syncomm’s future earnings growth is reflected in its share price. The P/E ratio is a useful tool for assessing market expectations based on earnings potential, so it’s worth checking Syncomm Technology’s P/E in relation to its industry.
Is Syncomm Technology Using Its Profits Wisely?
The decline in earnings is not shocking considering that Syncomm Technology has been distributing a significant portion of its profits as dividends. The company’s median payout ratio over three years is 58%, leaving only 42% for reinvestment. This limited reinvestment makes earnings growth unlikely.
Moreover, the company seems focused on maintaining its dividend payments, even as earnings decrease.
Conclusion
Overall, Syncomm Technology’s performance has been disappointing. Low reinvestment and a weak ROE contribute to the stagnant earnings growth. For a deeper understanding of the company’s historical performance, examining a free detailed graph of Syncomm Technology’s past earnings, revenue, and cash flows would be beneficial.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using an unbiased methodology. This is not financial advice and does not constitute a recommendation to buy or sell any stock. The analysis may not include the latest price-sensitive announcements or qualitative factors. Simply Wall St holds no positions in mentioned stocks.
