La Comere. of (BMV:LACOMERUBC) is up 7.3% over the past month. Since stock prices are usually aligned with a company’s financial performance over the long term, we decided to take a closer look at its financial indicators to see if they had a role to play in the recent price movement. . In particular, we will pay special attention to La Comer. ROE of today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simple terms, it is used to assess the profitability of a company in relation to its equity.
Check out our latest review for La Comer. of
How to calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for La Comer. of is:
5.6% = 1.4 billion Mexican dollars ÷ 25 billion Mexican dollars (based on the last twelve months until September 2021).
The “yield” is the amount earned after tax over the last twelve months. This means that for every MX$1 worth of equity, the company generated MX$0.06 of profit.
Why is ROE important for earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of La Comer. Earnings growth and ROE of 5.6%
It is difficult to argue that La Comer. ROE is very good in itself. Even compared to the industry average of 8.5%, the ROE figure is quite disappointing. Despite this, La Comer. de has been able to significantly increase its net income, at a rate of 21% over the past five years. We believe there could be other factors at play here. Such as – high revenue retention or effective management in place.
In a next step, we compared La Comer. growth in industry net income with the industry, and fortunately we saw that the growth seen by the company is higher than the industry average growth of 6.5%.
Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is La Comer. fair value relative to other companies? These 3 assessment metrics might help you decide.
Is La Comer. to effectively use its retained earnings?
La Comere. de’s three-year median payout ratio is below 22%, meaning it keeps a higher percentage (78%) of its earnings. So it looks like management is massively reinvesting earnings to grow their business, which is reflected in their earnings growth.
While La Comer. de has seen growth in earnings, it only recently started paying a dividend. Chances are the company has decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be approximately 26%. However, La Comer. ROE is expected to increase to 7.2% despite no expected change in its payout ratio.
All in all, it looks like La Comer. de presents some positive aspects of its activity. Even despite the low rate of return, the company posted impressive earnings growth thanks to massive reinvestment in its business. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.