Valuetronics Holdings Limited's (SGX:BN2) Has Had A Decent Run On The Stock market: Are Fundamentals In The Driver's Seat?

Yahoo

18-06-2025

Valuetronics Holdings' (SGX:BN2) stock is up by 2.2% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Particularly, we will be paying attention to Valuetronics Holdings' ROE today.
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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
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The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Valuetronics Holdings is:
11% = HK$166m ÷ HK$1.5b (Based on the trailing twelve months to March 2025).
The 'return' is the amount earned after tax 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 SGD0.11 in profit.
View our latest analysis for Valuetronics Holdings
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
To begin with, Valuetronics Holdings seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 8.2%. Given the circumstances, we can't help but wonder why Valuetronics Holdings saw little to no growth in the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
As a next step, we compared Valuetronics Holdings' performance with the industry and discovered the industry has shrunk at a rate of 4.1% in the same period meaning that the company has been shrinking its earnings at a rate lower than the industry. While this is not particularly good, its not particularly bad either.
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. If you're wondering about Valuetronics Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
In spite of a normal three-year median payout ratio of 39% (or a retention ratio of 61%), Valuetronics Holdings hasn't seen much growth in its earnings. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
Moreover, Valuetronics Holdings has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 40%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 12%.
On the whole, we do feel that Valuetronics Holdings has some positive attributes. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. 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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