Hydrapres SA (WSE:HPS) stock on an uptrend: Could the fundamentals be behind the momentum?

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Most readers will already know that Hydrapres (WSE:HPS) stock is up a significant 14% over the past three months. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. Concretely, we decided to study the ROE of Hydrapres in this article.

Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simple terms, it is used to assess the profitability of a company in relation to its equity.

See our latest analysis for Hydrapres

How is ROE calculated?

the ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Hydrapres is:

5.6% = 1.1 million zł ÷ 20 million zł (based on the last twelve months until September 2021).

“Yield” is the income the business has earned over the past year. This means that for every 1 PLN value of equity, the company has generated 0.06 PLN of profit.

What does ROE have to do with earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. 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. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

Hydrapres earnings growth and ROE of 5.6%

At first glance, Hydrapres’ ROE does not look very promising. We then compared the company’s ROE to the entire industry and were disappointed to see that the ROE is below the industry average of 9.7%. Despite this, surprisingly, Hydrapres has experienced exceptional net profit growth of 24% over the past five years. Therefore, there could be other reasons behind this 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 ratio.

As a next step, we benchmarked Hydrapres’ net income growth with the industry and found that the company has a similar growth figure compared to the industry average growth rate of 23% over the past year. the same period.

WSE:HPS Past Earnings Growth January 20, 2022

Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. Is Hydrapres correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Hydrapres effectively use its retained earnings?

Since Hydrapres does not pay any dividends to its shareholders, we deduce that the company has reinvested all its profits to develop its activity.

Conclusion

Overall, we feel Hydrapres has positive attributes. With a high reinvestment rate, albeit at a low ROE, the company managed to see considerable growth in earnings. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. To find out about the 2 risks that we have identified for Hydrapres, visit our risk dashboard for free.

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.

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