RB Capital Renda I Fundo de Investimento Imobiliário - FII (BVMF:FIIP11B) Has Fared Decently But Fundamentals Look Uncertain: What Lies Ahead For The Stock?

RB Capital Renda I Fundo de Investimento Imobiliário - FII's (BVMF:FIIP11B) stock is up by 2.6% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Particularly, we will be paying attention to RB Capital Renda I Fundo de Investimento Imobiliário - FII's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for RB Capital Renda I Fundo de Investimento Imobiliário - FII

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 RB Capital Renda I Fundo de Investimento Imobiliário - FII is:

14% = R$26m ÷ R$183m (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. So, this means that for every R$1 of its shareholder's investments, the company generates a profit of R$0.14.

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. 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.

RB Capital Renda I Fundo de Investimento Imobiliário - FII's Earnings Growth And 14% ROE

At first glance, RB Capital Renda I Fundo de Investimento Imobiliário - FII's ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 14%. Having said that, RB Capital Renda I Fundo de Investimento Imobiliário - FII has shown a modest net income growth of 16% over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared RB Capital Renda I Fundo de Investimento Imobiliário - FII's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 26% in the same period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. 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 RB Capital Renda I Fundo de Investimento Imobiliário - FII is trading on a high P/E or a low P/E, relative to its industry.

Is RB Capital Renda I Fundo de Investimento Imobiliário - FII Using Its Retained Earnings Effectively?

RB Capital Renda I Fundo de Investimento Imobiliário - FII seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 96%, meaning the company retains only 3.6% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. Despite this, the company's earnings grew moderately as we saw above.

Conclusion

In total, we're a bit ambivalent about RB Capital Renda I Fundo de Investimento Imobiliário - FII's performance. While the company has posted a decent earnings growth, We do feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings at a higher rate of return. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on RB Capital Renda I Fundo de Investimento Imobiliário - FII and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. 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.
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