Declining Stock and Solid Fundamentals: Is The Market Wrong About Cementos Molins, S.A. (BDM:CMO)?

With its stock down 3.3% over the past month, it is easy to disregard Cementos Molins (BDM:CMO). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on Cementos Molins' ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Cementos Molins is:

13% = €186m ÷ €1.5b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.13 in profit.

Check out our latest analysis for Cementos Molins

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Cementos Molins' Earnings Growth And 13% ROE

To begin with, Cementos Molins seems to have a respectable ROE. Especially when compared to the industry average of 6.9% the company's ROE looks pretty impressive. This probably laid the ground for Cementos Molins' moderate 15% net income growth seen over the past five years.

As a next step, we compared Cementos Molins' 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 7.4%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Cementos Molins fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Cementos Molins Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 38% (implying that the company retains 62% of its profits), it seems that Cementos Molins is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Additionally, Cementos Molins 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 40%. Accordingly, forecasts suggest that Cementos Molins' future ROE will be 13% which is again, similar to the current ROE.

Summary

Overall, we are quite pleased with Cementos Molins' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. You can see the 1 risk we have identified for Cementos Molins by visiting our risks dashboard for free on our platform here.

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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.