Minerva Insurance Company Public Ltd's (CSE:MINE) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Minerva Insurance Company (CSE:MINE) has had a rough month with its share price down 16%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Minerva Insurance Company's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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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 Minerva Insurance Company is:

12% = €1.8m ÷ €15m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.12.

See our latest analysis for Minerva Insurance Company

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. 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.

Minerva Insurance Company's Earnings Growth And 12% ROE

At first glance, Minerva Insurance Company seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 11%. This certainly adds some context to Minerva Insurance Company's exceptional 48% net income growth seen over the past five years. 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 Minerva Insurance Company's growth is quite high when compared to the industry average growth of 8.5% in the same period, which is great 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). Doing so will help them establish if the stock's future looks promising or ominous. What is MINE worth today? The intrinsic value infographic in our free research report helps visualize whether MINE is currently mispriced by the market.

Is Minerva Insurance Company Efficiently Re-investing Its Profits?

Minerva Insurance Company's three-year median payout ratio to shareholders is 4.5%, which is quite low. This implies that the company is retaining 95% of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Summary

On the whole, we feel that Minerva Insurance Company's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial 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. To know the 4 risks we have identified for Minerva Insurance Company visit our risks dashboard for free.

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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.