AS Ekspress Grupp (TAL: EEG1T) has had an excellent run in the equity market with a significant increase in its shares of 60% over the past month. However, we wonder if the inconsistent financial data of the company would negatively impact the current momentum of the share price. Specifically, we have decided to study the ROE of AS Ekspress Grupp in this article.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest review for AS Ekspress Grupp
How do you calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE for AS Ekspress Grupp is:
7.5% = 4.1 million euros Ã· 54 million euros (based on the last twelve months up to September 2021).
The “return” is the profit of the last twelve months. One way to conceptualize this is that for every $ 1 in share capital it has, the company has made $ 0.07 in profit.
What is the relationship between ROE and profit growth?
So far we’ve learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of ââthe growth potential of the business. 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.
AS Ekspress Grupp profit growth and 7.5% ROE
When you first watch it, AS Ekspress Grupp’s ROE doesn’t look so appealing. Then, compared to the industry average ROE of 12%, the company’s ROE leaves us even less enthusiastic. Given the circumstances, the significant drop in net income of 11% observed by AS Ekspress Grupp over the past five years is not surprising. We believe there could be other factors at play here as well. Such as – low profit retention or misallocation of capital.
That being said, we compared AS Ekspress Grupp’s performance with that of the industry and we were concerned that although the company reduced its profits, the industry increased its profits at a rate of. 5.2% over the same period.
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. Has the market taken into account the future prospects of EEG1T? You can find out in our latest Intrinsic Value Infographic Research Report.
Is AS Ekspress Grupp effectively reinvesting its profits?
Although the company has paid part of its dividend in the past, it currently does not pay any dividends. This implies that potentially all of its profits are reinvested in the business.
All in all, we are a little ambivalent about the performance of AS Ekspress Grupp. Although the company has a high rate of profit retention, its low rate of return is likely to hamper its profit growth. So far, we have only had a brief discussion about the company’s profit growth. You can do your own research on AS Ekspress Grupp and see how it has performed in the past by checking out this FREE detailed graphic past earnings, income and cash flow.
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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