Do Its Financials Have Any Role To Play In Driving Azzas 2154 S.A.'s (BVMF:AZZA3) Stock Up Recently?

Azzas 2154's (BVMF:AZZA3) stock is up by a considerable 69% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Azzas 2154's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

ROE 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 Azzas 2154 is:

4.9% = R$385m ÷ R$7.8b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. That means that for every R$1 worth of shareholders' equity, the company generated R$0.05 in profit.

See our latest analysis for Azzas 2154

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Azzas 2154's Earnings Growth And 4.9% ROE

As you can see, Azzas 2154's ROE looks pretty weak. Even compared to the average industry ROE of 17%, the company's ROE is quite dismal. However, we we're pleasantly surprised to see that Azzas 2154 grew its net income at a significant rate of 24% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Azzas 2154's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 22% in the same period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is AZZA3 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Azzas 2154 Efficiently Re-investing Its Profits?

The three-year median payout ratio for Azzas 2154 is 35%, which is moderately low. The company is retaining the remaining 65%. By the looks of it, the dividend is well covered and Azzas 2154 is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Azzas 2154 has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 42% of its profits over the next three years. Still, forecasts suggest that Azzas 2154's future ROE will rise to 12% even though the the company's payout ratio is not expected to change by much.

Summary

In total, it does look like Azzas 2154 has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.