Are Alper Consultoria e Corretora de Seguros S.A.'s (BVMF:APER3) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Alper Consultoria e Corretora de Seguros (BVMF:APER3) has had a rough week with its share price down 16%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Alper Consultoria e Corretora de Seguros' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Alper Consultoria e Corretora de Seguros

How Is ROE Calculated?

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 Alper Consultoria e Corretora de Seguros is:

3.1% = R$15m ÷ R$478m (Based on the trailing twelve months to September 2023).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each R$1 of shareholders' capital it has, the company made R$0.03 in profit.

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 Alper Consultoria e Corretora de Seguros' Earnings Growth And 3.1% ROE

It is hard to argue that Alper Consultoria e Corretora de Seguros' ROE is much good in and of itself. Even compared to the average industry ROE of 13%, the company's ROE is quite dismal. In spite of this, Alper Consultoria e Corretora de Seguros was able to grow its net income considerably, at a rate of 84% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Alper Consultoria e Corretora de Seguros' 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 3.4%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Alper Consultoria e Corretora de Seguros is trading on a high P/E or a low P/E, relative to its industry.

Is Alper Consultoria e Corretora de Seguros Efficiently Re-investing Its Profits?

The three-year median payout ratio for Alper Consultoria e Corretora de Seguros is 27%, which is moderately low. The company is retaining the remaining 73%. By the looks of it, the dividend is well covered and Alper Consultoria e Corretora de Seguros is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Alper Consultoria e Corretora de Seguros has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, it does look like Alper Consultoria e Corretora de Seguros 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. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 2 risks we have identified for Alper Consultoria e Corretora de Seguros.

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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.