Could The Market Be Wrong About Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Given Its Attractive Financial Prospects?

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) has had a rough month with its share price down 7.3%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

How Is ROE Calculated?

ROE 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 Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is:

21% = R$546m ÷ R$2.6b (Based on the trailing twelve months to December 2023).

The 'return' refers to a company's earnings over the last year. So, this means that for every R$1 of its shareholder's investments, the company generates a profit of R$0.21.

Why Is ROE Important For 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.

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Earnings Growth And 21% ROE

To begin with, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 7.1%. This certainly adds some context to Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's exceptional 25% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings 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.

As a next step, we compared Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's 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 16%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for INTB3? You can find out in our latest intrinsic value infographic research report.

Is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira Making Efficient Use Of Its Profits?

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has a three-year median payout ratio of 31% (where it is retaining 69% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is reinvesting its earnings efficiently.

Moreover, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 34%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 24%.

Summary

On the whole, we feel that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.