Is Urbas Grupo Financiero, S.A.'s (BME:UBS) Recent Stock Performance Influenced By Its Financials In Any Way?

Urbas Grupo Financiero's (BME:UBS) stock is up by 4.4% over the past month. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Urbas Grupo Financiero'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.

See our latest analysis for Urbas Grupo Financiero

How To 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 Urbas Grupo Financiero is:

2.4% = €8.0m ÷ €340m (Based on the trailing twelve months to December 2020).

The 'return' is the profit over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.02 in profit.

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.

Urbas Grupo Financiero's Earnings Growth And 2.4% ROE

It is quite clear that Urbas Grupo Financiero's ROE is rather low. Even when compared to the industry average of 6.0%, the ROE figure is pretty disappointing. However, we we're pleasantly surprised to see that Urbas Grupo Financiero grew its net income at a significant rate of 66% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Urbas Grupo Financiero's 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 12%.

Earnings growth is an important metric to consider when valuing a stock. 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 Urbas Grupo Financiero's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Urbas Grupo Financiero Efficiently Re-investing Its Profits?

Conclusion

In total, it does look like Urbas Grupo Financiero has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 2 risks we have identified for Urbas Grupo Financiero.

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This article by Simply Wall St is general in nature. 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.
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