Yahoo Finance Are Azeus Systems Holdings Ltd.'s (SGX:BBW) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?
It is hard to get excited after looking at Azeus Systems Holdings' (SGX:BBW) recent performance, when its stock has declined 14% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Azeus Systems Holdings' ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.
See our latest analysis for Azeus Systems Holdings
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Azeus Systems Holdings is:
36% = HK$58m ÷ HK$160m (Based on the trailing twelve months to September 2023).
The 'return' refers to a company's earnings over the last year. That means that for every SGD1 worth of shareholders' equity, the company generated SGD0.36 in profit.
What Has ROE Got To Do With 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. 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.
A Side By Side comparison of Azeus Systems Holdings' Earnings Growth And 36% ROE
To begin with, Azeus Systems Holdings has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Under the circumstances, Azeus Systems Holdings' considerable five year net income growth of 36% was to be expected.
Next, on comparing with the industry net income growth, we found that Azeus Systems Holdings' growth is quite high when compared to the industry average growth of 16% 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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Azeus Systems Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Azeus Systems Holdings Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 100% (implying that it keeps only 0.3% of profits) for Azeus Systems Holdings suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Moreover, Azeus Systems Holdings is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.
Conclusion
On the whole, we do feel that Azeus Systems Holdings has some positive attributes. Especially the growth in earnings which was backed by an impressive ROE. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. Up till now, we've only made a short study of the company's growth data. You can do your own research on Azeus Systems Holdings 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.