Is Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira's (BVMF:INTB3) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's (BVMF:INTB3) stock increased significantly by 17% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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

How Do You Calculate Return On Equity?

The formula for ROE is:

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$567m ÷ R$2.7b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every R$1 worth of equity, the company was able to earn R$0.21 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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

A Side By Side comparison of 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. On comparing with the average industry ROE of 7.2% the company's ROE looks pretty remarkable. This certainly adds some context to Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's exceptional 24% net income growth seen over the past five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.

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 15%.

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira Efficiently Re-investing Its Profits?

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's three-year median payout ratio is a pretty moderate 31%, meaning the company retains 69% of its income. So it seems that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

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. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 40% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.

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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com