Is Data Patterns (India) Limited’s (NSE:DATAPATTNS) Latest Stock Performance A Reflection Of Its Financial Health?

Data Patterns (India) (NSE:DATAPATTNS) stock is up a whopping 12% 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 typically drives market results. In this article, we decided to focus on the ROE of Data Patterns (India).

Return on Equity, or ROE, is a key metric used to assess how efficiently a company’s management is using the company’s capital. Put simply, it is used to assess a company’s profitability in relation to its equity.

Check out our latest analysis for Data Patterns (India).

How do you calculate return on equity?

The Formula for return on equity Is:

Return on Equity = Net Income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for data samples (India) is:

22% = ₹1.3b ÷ ₹5.9b (Based on trailing 12 months to December 2022).

The “return” is the annual profit. Another way to think of it is that for every £1 of equity the company was able to make a profit of ₹0.22.

Why is ROE important for earnings growth?

So far we’ve learned that ROE measures how efficiently a company generates its profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else being equal, companies that demonstrate both higher return on equity and higher earnings retention tend to be those that exhibit a higher growth rate than companies that do not share the same characteristics.

Data Patterns (India) earnings growth and 22% ROE

At first glance, Data Patterns (India) seems to have a decent ROE. Especially when compared to the industry average of 16%, the company’s ROE looks pretty impressive. Probably as a result, Data Patterns (India) has seen an impressive 42% net income growth over the past five years. We believe there could be other aspects positively impacting the company’s earnings growth as well. For example, the company has a low payout ratio or is run efficiently.

We then compared the net income growth of Data Patterns (India) to that of the industry and are pleased to note that the company’s growth figure is higher compared to the industry which has a growth rate of 15% over the same period.

Earnings growth is an important metric to consider when evaluating a stock. The investor should try to determine whether expected growth or earnings decline, whichever is the case, is being priced in. This then helps him determine whether the stock is placed for a bright or bleak future. A good indicator of expected earnings growth is the price-to-earnings ratio, which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you should check if Data Patterns (India) is trading at a high P/E or low P/E relative to its industry.

Is Data Patterns (India) using its profits efficiently?

Data Patterns (India)’s three-year average payout ratio to shareholders is 16%, which is pretty low. That means the company keeps 84% ​​of its profits. So, it looks like Data Patterns (India) is heavily reinvesting profits to grow its business, which is showing in its earnings growth.

Data Patterns (India) has posted earnings growth but has only recently started paying a dividend. It’s highly likely that the company has decided to impress new and existing shareholders with a dividend.

Diploma

Overall, we consider the performance of Data Patterns (India) to be quite good. In particular, it’s great to see that the company has invested heavily in its business and has resulted in significant earnings growth along with a high rate of return. If the company continues to grow earnings at the pace it has been, it could have a positive impact on the stock price, as earnings per share affect long-term stock prices. Not to mention, course results also depend on the potential risks a company may face. Therefore, it is important for investors to be aware of the risks involved in the business. You can see the 2 risks we have identified for Data Patterns (India) by visiting our Risk Dashboard for free on our platform here.

The assessment is complex, but we help to simplify it.

Find out if Data Patterns (India) might be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.

Check out the free analysis

This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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