Do Its Financials Have Any Role To Play In Driving LPS Brasil - Consultoria de Imóveis S.A.'s (BVMF:LPSB3) Stock Up Recently?

LPS Brasil - Consultoria de Imóveis' (BVMF:LPSB3) stock is up by a considerable 36% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to LPS Brasil - Consultoria de Imóveis' ROE today.

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.

See our latest analysis for LPS Brasil - Consultoria de Imóveis

How To Calculate Return On Equity?

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 LPS Brasil - Consultoria de Imóveis is:

9.4% = R$18m ÷ R$197m (Based on the trailing twelve months to June 2023).

The 'return' is the profit over the last twelve months. That means that for every R$1 worth of shareholders' equity, the company generated R$0.09 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. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

LPS Brasil - Consultoria de Imóveis' Earnings Growth And 9.4% ROE

It is hard to argue that LPS Brasil - Consultoria de Imóveis' ROE is much good in and of itself. A comparison with the industry shows that the company's ROE is pretty similar to the average industry ROE of 8.2%. Moreover, we are quite pleased to see that LPS Brasil - Consultoria de Imóveis' net income grew significantly at a rate of 66% over the last five years. We reckon that there could also be other factors at play thats influencing the company's growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared LPS Brasil - Consultoria de Imóveis' 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 25%.

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. Is LPS Brasil - Consultoria de Imóveis fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is LPS Brasil - Consultoria de Imóveis Using Its Retained Earnings Effectively?

LPS Brasil - Consultoria de Imóveis has a really low three-year median payout ratio of 24%, meaning that it has the remaining 76% left over to reinvest into its business. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, LPS Brasil - Consultoria de Imóveis has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we feel that LPS Brasil - Consultoria de Imóveis certainly does have some positive factors to consider. 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. To know the 2 risks we have identified for LPS Brasil - Consultoria de Imóveis visit our risks dashboard for free.

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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.