Data#3 (ASX:DTL): Strong Fundamentals Back Solid Performance

December 23, 2024 12:00 AM AEDT | By Team Kalkine Media

Data#3 (ASX:DTL): Strong Fundamentals Back Solid Performance — Image source: shutterstock

Understanding ROE and Its Impact on Growth

Return on equity is a key metric that evaluates a company’s profitability relative to its shareholder equity. For Data#3, the ROE currently stands at an impressive 58%. This means that for every A$1 of shareholder equity, the company generated A$0.58 in profit over the last year. This figure far surpasses the industry average of 6.4%, highlighting the company’s efficient profit-generating capabilities.

The formula for calculating ROE is:
ROE = Net Profit ÷ Shareholder's Equity

For Data#3, based on its trailing twelve months to June 2024:
58% = AU$43m ÷ AU$75m

This robust ROE has likely driven the company’s net income growth of 17% over the past five years.

Earnings Growth and Dividend Strategy

While high ROE often supports earnings growth, Data#3’s strategy balances reinvestment and shareholder returns. The company retains just under 9% of its profits, with the majority allocated to dividend payouts. Notably, Data#3 has consistently paid dividends for over a decade, a testament to its commitment to rewarding shareholders. Analysts predict the company will maintain a payout ratio of around 91% over the next three years.

Despite a high payout ratio, Data#3 has sustained decent earnings growth, showing that its approach to profit distribution has not significantly hindered its performance.

Future Prospects and Market Considerations

Analyst forecasts indicate that Data#3’s ROE may slightly improve to 63% in the future, but growth in earnings could slow. This underscores the importance of monitoring the company’s strategy as it continues to navigate market conditions while maintaining its focus on shareholder returns.

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