Is Atlantic Navigation Holdings (Singapore) Limited's (Catalist:5UL) Latest Stock Performance A Reflection Of Its Financial Health?
Most readers would already be aware that Atlantic Navigation Holdings (Singapore)'s (Catalist:5UL) stock increased significantly by 84% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Atlantic Navigation Holdings (Singapore)'s ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Atlantic Navigation Holdings (Singapore)
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Atlantic Navigation Holdings (Singapore) is:
14% = US$11m ÷ US$82m (Based on the trailing twelve months to December 2022).
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 SGD0.14 in profit.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Atlantic Navigation Holdings (Singapore)'s Earnings Growth And 14% ROE
At first glance, Atlantic Navigation Holdings (Singapore) seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 6.1%. This certainly adds some context to Atlantic Navigation Holdings (Singapore)'s exceptional 29% net income growth seen over the past five years. However, there could also be other causes behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
As a next step, we compared Atlantic Navigation Holdings (Singapore)'s net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 38% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Atlantic Navigation Holdings (Singapore) fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Atlantic Navigation Holdings (Singapore) Making Efficient Use Of Its Profits?
Atlantic Navigation Holdings (Singapore) doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.
Summary
In total, we are pretty happy with Atlantic Navigation Holdings (Singapore)'s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard would have the 3 risks we have identified for Atlantic Navigation Holdings (Singapore).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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