Yahoo Finance Is Dyna-Mac Holdings Ltd.'s (SGX:NO4) Latest Stock Performance A Reflection Of Its Financial Health?
Dyna-Mac Holdings' (SGX:NO4) stock is up by a considerable 38% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Dyna-Mac 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
View our latest analysis for Dyna-Mac Holdings
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Dyna-Mac Holdings is:
41% = S$29m ÷ S$70m (Based on the trailing twelve months to December 2023).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every SGD1 worth of equity, the company was able to earn SGD0.41 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.
Dyna-Mac Holdings' Earnings Growth And 41% ROE
First thing first, we like that Dyna-Mac Holdings has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 5.0% also doesn't go unnoticed by us. Under the circumstances, Dyna-Mac Holdings' considerable five year net income growth of 41% was to be expected.
Next, on comparing Dyna-Mac Holdings' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 41% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Dyna-Mac Holdings is trading on a high P/E or a low P/E, relative to its industry.
Is Dyna-Mac Holdings Efficiently Re-investing Its Profits?
Dyna-Mac Holdings' ' three-year median payout ratio is on the lower side at 23% implying that it is retaining a higher percentage (77%) of its profits. So it looks like Dyna-Mac Holdings is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Moreover, Dyna-Mac 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. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 35% over the next three years.
Conclusion
Overall, we are quite pleased with Dyna-Mac Holdings' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
