Cyrela Brazil Realty S.A. Empreendimentos e Participações' (BVMF:CYRE3) Stock Has Fared Decently: Is the Market Following Strong Financials?

Most readers would already know that Cyrela Brazil Realty Empreendimentos e Participações' (BVMF:CYRE3) stock increased by 8.4% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Cyrela Brazil Realty Empreendimentos e Participações' ROE today.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

How To 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 Cyrela Brazil Realty Empreendimentos e Participações is:

27% = R$1.8b ÷ R$6.5b (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. So, this means that for every R$1 of its shareholder's investments, the company generates a profit of R$0.27.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

A Side By Side comparison of Cyrela Brazil Realty Empreendimentos e Participações' Earnings Growth And 27% ROE

To start with, Cyrela Brazil Realty Empreendimentos e Participações' ROE looks acceptable. Especially when compared to the industry average of 14% the company's ROE looks pretty impressive. This certainly adds some context to Cyrela Brazil Realty Empreendimentos e Participações' exceptional 21% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Cyrela Brazil Realty Empreendimentos e Participações' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 11%.

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). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Cyrela Brazil Realty Empreendimentos e Participações''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Cyrela Brazil Realty Empreendimentos e Participações Efficiently Re-investing Its Profits?

Cyrela Brazil Realty Empreendimentos e Participações has a three-year median payout ratio of 30% (where it is retaining 70% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Cyrela Brazil Realty Empreendimentos e Participações is reinvesting its earnings efficiently.

Besides, Cyrela Brazil Realty Empreendimentos e Participações has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 73% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company's ROE to 14%, over the same period.

Conclusion

Overall, we are quite pleased with Cyrela Brazil Realty Empreendimentos e Participações' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

When trading Cyrela Brazil Realty Empreendimentos e Participações or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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