CyberTech Systems and Software Limited (NSE: CYBERTECH) shares are doing well: is the market following fundamentals?
CyberTech Systems and Software (NSE: CYBERTECH) had a strong run in the equity market with a significant 25% share increase over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. Specifically, we have decided to study the ROE of CyberTech Systems and Software in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for CyberTech systems and software
How to calculate return on equity?
the formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE of CyberTech systems and software is:
21% = ₹ 241m ÷ ₹ 1.1b (Based on the last twelve months up to March 2021).
The “return” is the amount earned after tax over the past twelve months. This means that for every 1 of equity, the company generated 0.21 of profit.
What is the relationship between ROE and profit growth?
So far we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. 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.
A side-by-side comparison of CyberTech Systems and Software’s profit growth and 21% ROE
For starters, CyberTech Systems and Software seems to have a respectable ROE. Especially compared to the industry average of 9.8%, the company’s ROE looks pretty impressive. It is probably because of this that CyberTech Systems and Software has achieved an impressive 30% net income growth over the past five years. We believe that there could also be other aspects that positively influence the company’s profit growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout rate.
As a next step, we compared CyberTech Systems and Software’s net income growth with the industry, and luckily, we found that the growth observed by the company is higher than the industry average growth of 11%.
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. If you’re wondering about CyberTech Systems and Software’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Are CyberTech’s Systems and Software Efficiently Using Their Profits?
CyberTech Systems and Software’s median three-year payout ratio to shareholders is 24%, which is quite low. This implies that the company keeps 76% of its profits. This suggests that management is reinvesting most of the profits to grow the business, as evidenced by the growth seen by the business.
Additionally, CyberTech Systems and Software has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders.
Overall, we think CyberTech Systems and Software’s performance has been quite good. Specifically, we like the fact that the company is reinvesting a huge portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. 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. Our risk dashboard would contain the 2 risks that we have identified for CyberTech systems and software.
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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 material. Simply Wall St has no position in any of the stocks mentioned.
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