Stock Analysis

Grupo SBF S.A.'s (BVMF:SBFG3) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

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BOVESPA:SBFG3
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It is hard to get excited after looking at Grupo SBF's (BVMF:SBFG3) recent performance, when its stock has declined 12% over the past week. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Grupo SBF's ROE.

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.

See our latest analysis for Grupo SBF

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Grupo SBF is:

25% = R$559m ÷ R$2.3b (Based on the trailing twelve months to June 2022).

The 'return' is the amount earned after tax 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$0.25 in profit.

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. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Grupo SBF's Earnings Growth And 25% ROE

To start with, Grupo SBF's ROE looks acceptable. Especially when compared to the industry average of 16% the company's ROE looks pretty impressive. Probably as a result of this, Grupo SBF was able to see a decent growth of 11% over the last five years.

As a next step, we compared Grupo SBF's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 19% in the same period.

past-earnings-growth
BOVESPA:SBFG3 Past Earnings Growth October 3rd 2022

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Grupo SBF fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Grupo SBF Efficiently Re-investing Its Profits?

Given that Grupo SBF doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, we are pretty happy with Grupo SBF's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.

Valuation is complex, but we're helping make it simple.

Find out whether Grupo SBF is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About BOVESPA:SBFG3

Grupo SBF

Grupo SBF S.A. engages in the retail and wholesale of sports products under the Centauro brand in Latin America.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth4
Past Performance4
Financial Health4
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Proven track record with reasonable growth potential.