Does Sociedad Matriz SAAM S.A.'s (SNSE:SMSAAM) Weak Fundamentals Mean That The Market Could Correct Its Share Price?

Most readers would already be aware that Sociedad Matriz SAAM's (SNSE:SMSAAM) stock increased significantly by 6.5% over the past month. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimately dictates market outcomes. Specifically, we decided to study Sociedad Matriz SAAM's ROE in this article.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

Return on equity 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 Sociedad Matriz SAAM is:

6.4% = US$71m ÷ US$1.1b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CLP1 worth of equity, the company was able to earn CLP0.06 in profit.

Check out our latest analysis for Sociedad Matriz SAAM

What Has ROE Got To Do With 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.

Sociedad Matriz SAAM's Earnings Growth And 6.4% ROE

As you can see, Sociedad Matriz SAAM's ROE looks pretty weak. Even when compared to the industry average of 15%, the ROE figure is pretty disappointing. For this reason, Sociedad Matriz SAAM's five year net income decline of 2.2% is not surprising given its lower ROE. However, there could also be other factors causing the earnings to decline. Such as - low earnings retention or poor allocation of capital.

However, when we compared Sociedad Matriz SAAM's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 20% in the same period. This is quite worrisome.

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. If you're wondering about Sociedad Matriz SAAM's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Sociedad Matriz SAAM Making Efficient Use Of Its Profits?

Sociedad Matriz SAAM's high three-year median payout ratio of 252% suggests that the company is depleting its resources to keep up its dividend payments, and this shows in its shrinking earnings. Paying a dividend higher than reported profits is not a sustainable move. Our risks dashboard should have the 2 risks we have identified for Sociedad Matriz SAAM.

Moreover, Sociedad Matriz SAAM has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Sociedad Matriz SAAM. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Sociedad Matriz SAAM's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.