Is Unifique Telecomunicações S.A.'s (BVMF:FIQE3) Recent Stock Performance Tethered To Its Strong Fundamentals?

Unifique Telecomunicações' (BVMF:FIQE3) stock is up by a considerable 13% over the past week. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Unifique Telecomunicações' ROE today.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Unifique Telecomunicações

How To Calculate Return On Equity?

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 Unifique Telecomunicações is:

7.3% = R$72m ÷ R$985m (Based on the trailing twelve months to September 2021).

The 'return' is the income the business earned over the last year. So, this means that for every R$1 of its shareholder's investments, the company generates a profit of R$0.07.

Why Is ROE Important For Earnings Growth?

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

Unifique Telecomunicações' Earnings Growth And 7.3% ROE

It is quite clear that Unifique Telecomunicações' ROE is rather low. However, when compared to the industry average of 2.5%, we do feel there's definitely more to the company. Even more so, after seeing Unifique Telecomunicações' exceptional 31% net income growth over the past five years. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Therefore, the growth in earnings could also be the result of other factors. For instance, the company has a low payout ratio or is being managed efficiently

We then performed a comparison between Unifique Telecomunicações' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 31% in the same period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. 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 Unifique Telecomunicações is trading on a high P/E or a low P/E, relative to its industry.

Is Unifique Telecomunicações Using Its Retained Earnings Effectively?

Summary

In total, we are pretty happy with Unifique Telecomunicações' performance. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.