With its stock down 21% in the past three months, it’s easy to overlook Patel Integrated Logistics (NSE: PATINTPP). Since stock prices are usually influenced by a company’s long-term fundamentals, which in this case seem quite weak, we decided to study the company’s key financial indicators. In particular, we will be paying attention to the ROE of Patel Integrated Logistics today.
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.
Check out our latest analysis for Patel Integrated Logistics
How do you calculate return on equity?
the return on equity formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Patel Integrated Logistics is:
1.0% = ₹11 million ÷ ₹1.2 billion (based on the last twelve months to December 2021).
The “yield” is the profit of the last twelve months. This means that for every ₹ of equity, the company generated ₹0.01 of profit.
What is the relationship between ROE and earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings 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 Patel Integrated Logistics earnings growth and ROE of 1.0%
It is clear that the ROE of Patel Integrated Logistics is rather low. Even compared to the industry average ROE of 19%, the company’s ROE is pretty dismal. Therefore, it may not be wrong to say that the 36% drop in net income over five years that Patel Integrated Logistics saw was possibly the result of lower ROE. We believe there could be other factors at play here as well. Such as – low income retention or poor capital allocation.
That being said, we compared the performance of Patel Integrated Logistics with the industry and were concerned when we found that while the company had reduced profits, the industry had increased profits at a rate of 11% over the of the same period.
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 will help them determine if the future of the title looks bright or ominous. Is Patel Integrated Logistics correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Is Patel Integrated Logistics using its retained earnings effectively?
With a high three-year median payout ratio of 96% (implying that 4.4% of profits are retained), most of Patel Integrated Logistics’ profits are paid out to shareholders, which explains the company’s declining profits. ‘business. With very little left to reinvest in the business, earnings growth is far from likely. You can see the 5 risks we have identified for Patel Integrated Logistics by visiting our risk dashboard for free on our platform here.
Additionally, Patel Integrated Logistics has been paying dividends for at least a decade or more, suggesting that management must have perceived that shareholders prefer dividends to earnings growth.
Overall, the performance of Patel Integrated Logistics is quite disappointing. In particular, its ROE is a huge disappointment, not to mention its lack of proper reinvestment in the business. As a result, its earnings growth was also quite disappointing. So far, we have only made a short study of the company’s growth data. To better understand Patel Integrated Logistics’ past earnings growth, check out this visualization of past earnings, revenue, and cash flow.
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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.