Is Soquimich Comercial S.A.'s(SNSE:SOQUICOM) Recent Stock Performance Tethered To Its Strong Fundamentals?

By
Simply Wall St
Published
January 14, 2022
SNSE:SOQUICOM
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Soquimich Comercial (SNSE:SOQUICOM) has had a great run on the share market with its stock up by a significant 14% over the last three months. 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 Soquimich Comercial's 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Soquimich Comercial

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 Soquimich Comercial is:

18% = US$14m ÷ US$76m (Based on the trailing twelve months to September 2021).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each CLP1 of shareholders' capital it has, the company made CLP0.18 in profit.

What Has ROE Got To Do With Earnings Growth?

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

Soquimich Comercial's Earnings Growth And 18% ROE

To start with, Soquimich Comercial's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 21%. Consequently, this likely laid the ground for the impressive net income growth of 29% seen over the past five years by Soquimich Comercial. However, there could also be other drivers behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Soquimich Comercial's growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

past-earnings-growth
SNSE:SOQUICOM Past Earnings Growth January 14th 2022

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is SOQUICOM fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Soquimich Comercial Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 86% (implying that it keeps only 14% of profits) for Soquimich Comercial suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Soquimich Comercial has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

On the whole, we feel that Soquimich Comercial's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. You can do your own research on Soquimich Comercial and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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