Shares of Comal SpA (BIT: CML) recently showed weakness, but financial data looks strong: should potential shareholders take the plunge?


Comal (BIT: CML) had a tough week with its share price down 12%. But if you pay close attention to it, you might understand that its strong financial data could mean that the stock could potentially see its value rise in the long run, given how the markets typically reward companies with good health. financial. Specifically, we have decided to study the ROE of Comal in this article.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. Simply put, it is used to assess a company’s profitability against its equity.

Check out our latest analysis for Comal

How to 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, Comal’s ROE is:

11% = 1.3 million euros ÷ 12 million euros (based on the last twelve months up to June 2021).

The “return” is the annual profit. This means that for every € 1 of equity, the company generated € 0.11 in profit.

What does ROE have to do with profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. Assuming everything is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics. .

Growth in Comal’s profits and 11% ROE

For starters, Comal appears to have a respectable ROE. Even so, compared to the industry average ROE of 15%, we’re not very excited. However, we are pleased to see the impressive 45% net income growth reported by Comal over the past five years. We believe that there could be other aspects that positively influence the growth of the company’s earnings. For example, the business has a low payout ratio or is managed efficiently. However, it should be remembered that the company has a decent ROE to start with, just that it is below the industry average. So this also gives color to the high profit growth observed by the company.

We then compared the growth of Comal’s net income with the industry and we are happy to see that the growth figure of the company is higher compared to the industry which has a growth rate of 15% over the course of from the same period.

BIT: CML Past Profit Growth September 28, 2021

Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. In doing so, he will have an idea if the action is heading towards clear blue waters or swampy waters ahead. If you are wondering about Comal’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.

Is Comal effectively reinvesting its profits?

Since Comal does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to develop its business.

Conclusion

All in all, we are quite satisfied with the performance of Comal. In particular, it’s great to see that the company has seen significant profit growth supported by a respectable ROE and a high reinvestment rate. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Let’s not forget that trading risk is also one of the factors that affect the price of the stock. So this is also an important area that investors should pay attention to before making a decision on a business. To find out about the 3 risks we have identified for Comal, visit our risk dashboard free of charge.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is 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 material. Simply Wall St has no position in any of the stocks mentioned.

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About Geraldine Higgins

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