Prymus SA (WSE: PRS) stock is on an uptrend: is solid financial data driving the market?
Prymus (WSE: PRS) shares have risen 13% in the past three months. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. Specifically, we decided to study the ROE of Prymus in this article.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
See our latest review for Prymus
How to calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Prymus is:
20% = zł5.1m z ÷ 25m (Based on the last twelve months up to March 2021).
The “return” is the amount earned after tax over the past twelve months. Another way to look at this is that for every PLN 1 value of equity, the company was able to make a profit of PLN 0.20.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess the profits that the business is reinvesting or “withholding” for future growth, which then gives us an idea of the growth potential of the business. Generally speaking, all other things being equal, companies with a high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.
Prymus profit growth and 20% ROE
For starters, Prymus’ ROE seems acceptable. Additionally, the company’s ROE compares quite favorably to the industry average of 11%. This certainly adds context to Prymus’ decent 10% net income growth seen over the past five years.
Then, comparing with the industry’s net income growth, we found that the reported growth of Prymus was lower than the industry’s growth by 18% over the same period, which is not some thing we love to see.
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. This will help him determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check if Prymus is trading high P / E or low P / E, relative to its industry.
Is Prymus using its retained earnings efficiently?
Prymus does not pay any dividends, which means that all of its profits are reinvested in the business, which explains the good profit growth the company has experienced.
All in all, we are quite satisfied with the performance of Prymus. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in respectable growth in its profits. 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 stock price. So this is also an important area that investors should pay attention to before making a decision on a business. You can see the 2 risks we have identified for Prymus by visiting our risk dashboard for free on our platform here.
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This Simply Wall St article is general in nature. 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 documents. Simply Wall St has no position in the mentioned stocks.
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