Hypera S.A.'s (BVMF:HYPE3) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Hypera's (BVMF:HYPE3) stock is up by a considerable 25% over the past month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study Hypera's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Hypera is:

6.8% = R$803m ÷ R$12b (Based on the trailing twelve months to March 2025).

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$0.07 in profit.

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What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Hypera's Earnings Growth And 6.8% ROE

As you can see, Hypera's ROE looks pretty weak. Even compared to the average industry ROE of 9.7%, the company's ROE is quite dismal. Therefore, the disappointing ROE therefore provides a background to Hypera's very little net income growth of 2.8% over the past five years.

We then compared Hypera's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 8.5% in the same 5-year period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. What is HYPE3 worth today? The intrinsic value infographic in our free research report helps visualize whether HYPE3 is currently mispriced by the market.

Is Hypera Making Efficient Use Of Its Profits?

Despite having a moderate three-year median payout ratio of 46% (implying that the company retains the remaining 54% of its income), Hypera's earnings growth was quite low. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.

Moreover, Hypera has been paying dividends for nine years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 29% over the next three years. As a result, the expected drop in Hypera's payout ratio explains the anticipated rise in the company's future ROE to 17%, over the same period.

Conclusion

On the whole, we feel that the performance shown by Hypera can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.