Mindteck (India) Limited (NSE: MINDTECK) is doing well, but fundamentals look mixed: is there a clear direction for action?

Mindteck (India) (NSE: MINDTECK) stock has increased 21% in the past three months. However, we wonder if the company’s inconsistent financial data would negatively impact the current stock price dynamics. In particular, we will pay attention today to the ROE of Mindteck (India).

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 Mindteck (India)

How do you calculate return on equity?

Return on equity can be calculated using the formula:

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

So, based on the above formula, the ROE of Mindteck (India) is:

7.8% = ₹ 109 million ÷ ÷ 1.4 billion ₹ (based on the last twelve months up to March 2021).

The “return” is the profit of the last twelve months. Another way to think about this is that for every ₹ 1 worth of equity, the company was able to earn ₹ 0.08 in profit.

Why is ROE important for profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. 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.

A side-by-side comparison of Mindteck’s (India) profit growth and 7.8% ROE

As you can see, the ROE of Mindteck (India) seems quite low. Additionally, we noted that the company’s ROE is similar to the industry average of 7.8%. Given the circumstances, the significant drop in net income of 67% observed by Mindteck (India) over the past five years is not surprising.

However, when we compared the growth of Mindteck (India) to that of the industry, we found that although the company’s profits are declining, the industry has seen profit growth of 11% over the past year. the same period. It is quite worrying.

NSEI: MINDTECK Past Profit Growth May 30, 2021

Profit growth is an important factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are ahead of them. If you are wondering about the valuation of Mindteck (India), take a look at this indicator of its price / earnings ratio, relative to its industry.

Is Mindteck (India) using its retained earnings efficiently?

Although the company has paid part of its dividend in the past, it does not currently pay a dividend. This implies that potentially all of its profits are reinvested in the business.

summary

All in all, we are a little ambivalent about the performance of Mindteck (India). Although the company has a high rate of profit retention, its low rate of return is likely to hamper its profit growth. In conclusion, we would proceed cautiously with this company and one way to do that would be to look at the risk profile of the company. Our risk dashboard would include the 3 risks we identified for Mindteck (India).

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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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