Industrias Peñoles, SAB de CV (BMV: PE & OLES) on an uptrend but the financial outlook looks rather weak: is the stock overvalued?

Most readers already know that Industrias Peñoles. The share of de (BMV: PE & OLES) has risen significantly by 12% over the past month. However, we have decided to pay close attention to its weak financial position as we doubt that the current momentum will continue, given the scenario. Specifically, we decided to study Industrias Peñoles. ROE of in this article.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.

See our latest analysis for Industrias Peñoles. of

How do you calculate return on equity?

ROE can be calculated using the formula:

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

So, based on the above formula, the ROE for Industrias Peñoles. from is:

9.5% = $ 451 million ÷ $ 4.7 billion (based on the last twelve months to March 2021).

The “return” is the annual profit. This therefore means that for every MX dollar of its shareholder’s investments, the company generates a profit of MX $ 0.10.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

Industrias Peñoles. 9.5% profit growth and ROE from

At first glance, Industrias Peñoles. The ROE of de is not much to say. Another quick study shows that the company’s ROE also doesn’t compare to the industry average of 15%. Given the circumstances, the significant drop in net profit of 24% observed by Industrias Peñoles. of the past five years is not surprising. We believe there could be other factors at play here as well. For example, the company has a very high payout ratio or faces competitive pressures.

So, as a next step, we compared Industrias Peñoles. in performance relative to the industry and were disappointed to find that while the company reduced its profits, the industry increased its profits at a rate of 8.0% over the same period.

BMV: PE & OLES * Past profit growth May 30, 2021

Profit growth is an important factor in the valuation of stocks. The investor should try to determine whether the expected growth or decline in earnings, whatever the case, is taken into account. This then helps them determine whether the action is set for a bright or gloomy future. Is Industrias Peñoles. of fair value compared to other companies? These 3 evaluation measures could help you make a decision.

Is Industrias Peñoles. to use its profits effectively?

Industrias Peñoles. De’s decline in profits is not surprising given how the company spends most of its profits on dividends, judging by its three-year median payout ratio of 61% (or a retention rate of 39%). With only a little bit of being reinvested in the business, earnings growth would obviously be low or nonexistent. You can see the 2 risks that we have identified for Industrias Peñoles. by visiting our risk dashboard for free on our platform here.

In addition, Industrias Peñoles. of paying dividends for at least ten years, suggesting that sustaining dividend payments is much more important to management, even if it comes at the expense of growing the business. Our latest analyst data shows the company’s future payout ratio is expected to reach 93% over the next three years. Anyway, the future ROE for Industrias Peñoles. de is expected to increase to 17% despite the expected increase in the payout ratio. Other factors could probably be behind the future growth of ROE.

Conclusion

All in all, we would have thought carefully before deciding on any investment action regarding Industrias Peñoles. of. The company has seen a lack of earnings growth due to withholding very little earnings and whatever it holds back is being reinvested at a very low rate of return. That said, we have looked at the latest analysts’ forecast and found that while the company has cut profits in the past, analysts expect its profits to rise in the future. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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About Geraldine Higgins

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