Is the strong financial outlook the driving force behind Azeus Systems Holdings Ltd.’s SGX: BBW) stock?
Azeus Systems Holdings (SGX: BBW) has had an excellent performance in the equity market with a significant increase in its share of 75% in the past three months. Given that the market rewards strong, long-term financials, we wonder if this is the case in this case. In this article, we have decided to focus on the ROE of Azeus Systems Holdings.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest review for Azeus Systems Holdings
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE of Azeus Systems Holdings is:
20% = HK $ 24 million HK $ 119 million (based on the last twelve months to March 2021).
The “return†is the annual profit. Another way to look at this is that for every SGD1 value of equity, the company was able to earn SGD0.20 in profit.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the business is reinvesting or “withholding†for future growth, which then gives us an idea of ​​the growth potential of the business. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Azeus Systems Holdings profit growth and 20% ROE
For starters, Azeus Systems Holdings appears to have a respectable ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 11%. This likely laid the foundation for the significant 60% net profit growth of Azeus Systems Holdings over the past five years. We believe there could be other factors at play here as well. Such as – high profit retention or effective management in place.
We then compared the net income growth of Azeus Systems Holdings with the industry and we are delighted to see that the growth number of the company is higher than that of the industry which has a growth rate of 7 , 1% over the same period.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. In doing so, he will have an idea if the action is heading for clear blue waters or swampy waters ahead. If you’re wondering about the valuation of Azeus Systems Holdings, check out this gauge of its price / earnings ratio, relative to its industry.
Is Azeus Systems Holdings Reinvesting Profits Effectively?
The three-year median payout ratio for Azeus Systems Holdings is 41%, which is moderately low. The company retains the remaining 59%. This suggests that its dividend is well hedged, and given the strong growth we discussed above, it appears Azeus Systems Holdings is reinvesting its earnings in an efficient manner.
In addition, Azeus Systems Holdings has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders.
Conclusion
Overall, we are quite satisfied with the performance of Azeus Systems Holdings. In particular, we like the fact that the company is reinvesting heavily in its business and at a high rate of return. Unsurprisingly, this led to impressive profit growth. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should keep themselves informed of the risks involved before investing in a business. You can see the 3 risks we have identified for Azeus Systems Holdings by visiting our risk dashboard for free on our platform here.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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