Stock Analysis

Robex Resources Inc.'s (CVE:RBX) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

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Robex Resources (CVE:RBX) has had a rough three months with its share price down 24%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Robex Resources' ROE.

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.

See our latest analysis for Robex Resources

How To Calculate Return On Equity?

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 Robex Resources is:

11% = CA\$23m ÷ CA\$204m (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. Another way to think of that is that for every CA\$1 worth of equity, the company was able to earn CA\$0.11 in profit.

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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Robex Resources' Earnings Growth And 11% ROE

To begin with, Robex Resources seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 10.0%. This certainly adds some context to Robex Resources' moderate 13% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Robex Resources' reported growth was lower than the industry growth of 31% over the last few years, which is not something we like to see.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 Robex Resources is trading on a high P/E or a low P/E, relative to its industry.

Is Robex Resources Efficiently Re-investing Its Profits?

Robex Resources doesn't pay any dividend, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Conclusion

Overall, we are quite pleased with Robex Resources' 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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 1 risk we have identified for Robex Resources visit our risks dashboard for free.

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