Stock Analysis

Has Thunderbird Entertainment Group Inc.'s (CVE:TBRD) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

TSXV:TBRD
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Thunderbird Entertainment Group (CVE:TBRD) has had a great run on the share market with its stock up by a significant 61% over the last three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Thunderbird Entertainment Group's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Thunderbird Entertainment Group

How Is ROE Calculated?

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 Thunderbird Entertainment Group is:

7.4% = CA$4.3m ÷ CA$57m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.07.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Thunderbird Entertainment Group's Earnings Growth And 7.4% ROE

On the face of it, Thunderbird Entertainment Group's ROE is not much to talk about. Next, when compared to the average industry ROE of 16%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that Thunderbird Entertainment Group grew its net income at a significant rate of 73% in the last five years. We reckon that there could be other factors at play here. 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 Thunderbird Entertainment Group'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 47%.

past-earnings-growth
TSXV:TBRD Past Earnings Growth December 22nd 2020

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Thunderbird Entertainment Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Thunderbird Entertainment Group Using Its Retained Earnings Effectively?

Summary

Overall, we feel that Thunderbird Entertainment Group certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 4 risks we have identified for Thunderbird Entertainment Group visit our risks dashboard for free.

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This article by Simply Wall St is general in nature. 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.
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