Is Moura Dubeux Engenharia S.A.'s (BVMF:MDNE3) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Moura Dubeux Engenharia's (BVMF:MDNE3) stock is up by a considerable 53% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Moura Dubeux Engenharia's 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.

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How Do You 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 Moura Dubeux Engenharia is:

17% = R$279m ÷ R$1.6b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. That means that for every R$1 worth of shareholders' equity, the company generated R$0.17 in profit.

See our latest analysis for Moura Dubeux Engenharia

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Moura Dubeux Engenharia's Earnings Growth And 17% ROE

On the face of it, Moura Dubeux Engenharia's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 10% which we definitely can't overlook. Particularly, the substantial 58% net income growth seen by Moura Dubeux Engenharia over the past five years is impressive . 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. Such as- high earnings retention or the company belonging to a high growth industry.

We then compared Moura Dubeux Engenharia's 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 16% in the same 5-year period.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Moura Dubeux Engenharia is trading on a high P/E or a low P/E, relative to its industry.

Is Moura Dubeux Engenharia Using Its Retained Earnings Effectively?

Moura Dubeux Engenharia's three-year median payout ratio to shareholders is 23%, which is quite low. This implies that the company is retaining 77% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

While Moura Dubeux Engenharia has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Conclusion

On the whole, we feel that Moura Dubeux Engenharia's 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.