Are Strong Financial Prospects The Force That Is Driving The Momentum In Atomenergoremont PLC's BUL:ATOM) Stock?

Atomenergoremont's (BUL:ATOM) stock is up by a considerable 67% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Atomenergoremont's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Atomenergoremont

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Atomenergoremont is:

11% = лв23m ÷ лв201m (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. So, this means that for every BGN1 of its shareholder's investments, the company generates a profit of BGN0.11.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Atomenergoremont's Earnings Growth And 11% ROE

At first glance, Atomenergoremont seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 10%. This probably goes some way in explaining Atomenergoremont's moderate 16% growth over the past five years amongst other factors.

As a next step, we compared Atomenergoremont's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 23% in the same period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Atomenergoremont fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Atomenergoremont Efficiently Re-investing Its Profits?

Atomenergoremont's three-year median payout ratio to shareholders is 1.8% (implying that it retains 98% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Besides, Atomenergoremont has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Atomenergoremont's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see a good amount of growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 2 risks we have identified for Atomenergoremont visit our risks dashboard for free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.