Are Robust Financials Driving The Recent Rally In LPS Brasil - Consultoria de Imóveis S.A.'s (BVMF:LPSB3) Stock?

LPS Brasil - Consultoria de Imóveis (BVMF:LPSB3) has had a great run on the share market with its stock up by a significant 31% over the last month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on LPS Brasil - Consultoria de Imóveis' ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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?

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 LPS Brasil - Consultoria de Imóveis is:

16% = R$38m ÷ R$236m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. Another way to think of that is that for every R$1 worth of equity, the company was able to earn R$0.16 in profit.

See our latest analysis for LPS Brasil - Consultoria de Imóveis

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. 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.

LPS Brasil - Consultoria de Imóveis' Earnings Growth And 16% ROE

When you first look at it, LPS Brasil - Consultoria de Imóveis' ROE doesn't look that attractive. However, the fact that the its ROE is quite higher to the industry average of 12% doesn't go unnoticed by us. This certainly adds some context to LPS Brasil - Consultoria de Imóveis' moderate 14% net income growth seen over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Hence there might be some other aspects that are causing earnings to grow. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

We then compared LPS Brasil - Consultoria de Imóveis' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 11% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is LPSB3 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is LPS Brasil - Consultoria de Imóveis Making Efficient Use Of Its Profits?

In LPS Brasil - Consultoria de Imóveis' case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 24% (or a retention ratio of 76%), which suggests that the company is investing most of its profits to grow its business.

Besides, LPS Brasil - Consultoria de Imóveis has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that LPS Brasil - Consultoria de Imóveis' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 2 risks we have identified for LPS Brasil - Consultoria de Imóveis.

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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.