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Dyna-Mac Holdings (SGX:NO4) stock has increased by a significant 38% over the past month. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. This time, I decided to focus on Dynamac Holdings’ ROE.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. More simply, it measures a company’s profitability in relation to shareholder equity.
Check out our latest analysis for Dyna-Mac Holdings.
How is ROE calculated?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
Based on the above formula, Dynamac Holdings’ ROE is:
41% = S$29 million ÷ S$70 million (based on trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. Another way to think of it is that for every S$1 worth of shares, the company was able to earn him S$0.41 in profit.
What relationship does ROE have with profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. All else being equal, companies with higher return on equity and profit retention typically have higher growth rates compared to companies that don’t have the same characteristics.
Dynamac Holdings’ earnings growth and ROE 41%
First of all, we like that Dynamac Holdings has a good ROE. Secondly, we can’t ignore the comparison to the average ROE of 5.0% reported by the industry. Under these circumstances, Dyna-Mac Holdings was expected to have a significant 41% net income increase over his five years.
We then compared Dyna-Mac Holdings’ net income growth rate with its industry and found that the company’s reported growth rate is similar to the industry’s average growth rate of 41% over the past few years.
Earnings growth is an important metric to consider when evaluating a stock. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. 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 outlook. So it may be worth checking whether Dyna-Mac Holdings is trading on a higher or lower P/E ratio relative to its industry.
Is Dynamac Holdings reinvesting its profits efficiently?
Dyna-Mac Holdings has a lower median three-year payout ratio of 23%, meaning it retains a higher percentage of its profits (77%). So it seems Dynamac Holdings is reinvesting a lot of its profits to grow its business, and this is reflected in its revenue growth.
Furthermore, Dynamac Holdings is determined to continue sharing its profits with its shareholders, as inferred by its long history of paying dividends for at least 10 years. Researching the latest analyst consensus data, we found that the company’s future dividend payout ratio is expected to rise to 35% over the next three years.
conclusion
Overall, we are very satisfied with Dynamac Holdings’ performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. With that said, the company’s revenue growth is expected to slow, as predicted by current analyst forecasts. Learn more about the company’s future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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