Is Salamis Tours (Holdings) Public Limited's (CSE:SAL) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Salamis Tours (Holdings) (CSE:SAL) has had a great run on the share market with its stock up by a significant 36% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Salamis Tours (Holdings)'s ROE today.

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.

View our latest analysis for Salamis Tours (Holdings)

How Do You Calculate Return On Equity?

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 Salamis Tours (Holdings) is:

24% = €15m ÷ €63m (Based on the trailing twelve months to December 2022).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.24.

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.

Salamis Tours (Holdings)'s Earnings Growth And 24% ROE

First thing first, we like that Salamis Tours (Holdings) has an impressive ROE. Secondly, even when compared to the industry average of 5.5% the company's ROE is quite impressive. This likely paved the way for the modest 19% net income growth seen by Salamis Tours (Holdings) over the past five years.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Salamis Tours (Holdings) compares quite favourably to the industry average, which shows a decline of 14% over the last few years.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Salamis Tours (Holdings)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Salamis Tours (Holdings) Making Efficient Use Of Its Profits?

Salamis Tours (Holdings) has a three-year median payout ratio of 32%, which implies that it retains the remaining 68% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Salamis Tours (Holdings) has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Salamis Tours (Holdings)'s performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard will have the 1 risk we have identified for Salamis Tours (Holdings).

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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.