Is Multiplan Empreendimentos Imobiliários S.A.'s (BVMF:MULT3) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Multiplan Empreendimentos Imobiliários' (BVMF:MULT3) stock increased significantly by 14% over the past three months. 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. Specifically, we decided to study Multiplan Empreendimentos Imobiliários' ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You Calculate Return On Equity?

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 Multiplan Empreendimentos Imobiliários is:

23% = R$1.3b ÷ R$5.7b (Based on the trailing twelve months to March 2025).

The 'return' is the profit 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$0.23 in profit.

Check out our latest analysis for Multiplan Empreendimentos Imobiliários

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. 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. 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.

Multiplan Empreendimentos Imobiliários' Earnings Growth And 23% ROE

To start with, Multiplan Empreendimentos Imobiliários' ROE looks acceptable. On comparing with the average industry ROE of 10% the company's ROE looks pretty remarkable. This probably laid the ground for Multiplan Empreendimentos Imobiliários' moderate 15% net income growth seen over the past five years.

We then performed a comparison between Multiplan Empreendimentos Imobiliários' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 16% 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. 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 Multiplan Empreendimentos Imobiliários is trading on a high P/E or a low P/E, relative to its industry.

Is Multiplan Empreendimentos Imobiliários Using Its Retained Earnings Effectively?

Multiplan Empreendimentos Imobiliários has a significant three-year median payout ratio of 52%, meaning that it is left with only 48% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Multiplan Empreendimentos Imobiliários 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 52% of its profits over the next three years. Regardless, Multiplan Empreendimentos Imobiliários' ROE is speculated to decline to 17% despite there being no anticipated change in its payout ratio.

Conclusion

In total, we are pretty happy with Multiplan Empreendimentos Imobiliários' performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.