Plano & Plano Desenvolvimento Imobiliário S.A. (BVMF:PLPL3) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at Plano & Plano Desenvolvimento Imobiliário's (BVMF:PLPL3) recent performance, when its stock has declined 26% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Plano & Plano Desenvolvimento Imobiliário's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Plano & Plano Desenvolvimento Imobiliário

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Plano & Plano Desenvolvimento Imobiliário is:

41% = R$373m ÷ R$910m (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every R$1 worth of equity, the company was able to earn R$0.41 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Plano & Plano Desenvolvimento Imobiliário's Earnings Growth And 41% ROE

To begin with, Plano & Plano Desenvolvimento Imobiliário has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 16% which is quite remarkable. As a result, Plano & Plano Desenvolvimento Imobiliário's exceptional 24% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Plano & Plano Desenvolvimento Imobiliário's growth is quite high when compared to the industry average growth of 4.3% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Plano & Plano Desenvolvimento Imobiliário fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Plano & Plano Desenvolvimento Imobiliário Using Its Retained Earnings Effectively?

The three-year median payout ratio for Plano & Plano Desenvolvimento Imobiliário is 27%, which is moderately low. The company is retaining the remaining 73%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Plano & Plano Desenvolvimento Imobiliário is reinvesting its earnings efficiently.

Additionally, Plano & Plano Desenvolvimento Imobiliário has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 63% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Summary

On the whole, we feel that Plano & Plano Desenvolvimento Imobiliário'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 substantial growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.

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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.