Do Fundamentals Have Any Role To Play In Driving Q & M Dental Group (Singapore) Limited's (SGX:QC7) Stock Up Recently?
In This Article:
Most readers would already know that Q & M Dental Group (Singapore)'s (SGX:QC7) stock increased by 4.3% 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. In this article, we decided to focus on Q & M Dental Group (Singapore)'s 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.
See our latest analysis for Q & M Dental Group (Singapore)
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Q & M Dental Group (Singapore) is:
11% = S$11m ÷ S$103m (Based on the trailing twelve months to December 2023).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each SGD1 of shareholders' capital it has, the company made SGD0.11 in profit.
Why Is ROE Important For Earnings Growth?
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.
A Side By Side comparison of Q & M Dental Group (Singapore)'s Earnings Growth And 11% ROE
To start with, Q & M Dental Group (Singapore)'s ROE looks acceptable. Even when compared to the industry average of 9.6% the company's ROE looks quite decent. As you might expect, the 4.2% net income decline reported by Q & M Dental Group (Singapore) is a bit of a surprise. 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. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.
That being said, we compared Q & M Dental Group (Singapore)'s performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 15% in the same 5-year period.