Are Nutriplant Indústria e Comércio S/A's (BVMF:NUTR3) Mixed Financials The Reason For Its Gloomy Performance on The Stock Market?

With its stock down 27% over the past three months, it is easy to disregard Nutriplant Indústria e Comércio S/A (BVMF:NUTR3). We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. In this article, we decided to focus on Nutriplant Indústria e Comércio S/A's ROE.

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.

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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 Nutriplant Indústria e Comércio S/A is:

13% = R$5.6m ÷ R$43m (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each R$1 of shareholders' capital it has, the company made R$0.13 in profit.

View our latest analysis for Nutriplant Indústria e Comércio S/A

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Nutriplant Indústria e Comércio S/A's Earnings Growth And 13% ROE

It is quite clear that Nutriplant Indústria e Comércio S/A's ROE is rather low. Further, we noted that the company's ROE is similar to the industry average of 13%. Given the circumstances, the significant decline in net income by 40% seen by Nutriplant Indústria e Comércio S/A over the last five years is not surprising.

So, as a next step, we compared Nutriplant Indústria e Comércio S/A's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 1.0% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Nutriplant Indústria e Comércio S/A's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Nutriplant Indústria e Comércio S/A Using Its Retained Earnings Effectively?

Because Nutriplant Indústria e Comércio S/A doesn't pay any regular dividends, we infer that it is retaining all of its profits, which is rather perplexing when you consider the fact that there is no earnings growth to show for it. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Summary

On the whole, we feel that the performance shown by Nutriplant Indústria e Comércio S/A can be open to many interpretations. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 3 risks we have identified for Nutriplant Indústria e Comércio S/A.

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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.