Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's (EPA:BAIN) Stock Is Going Strong: Have Financials A Role To Play?

Most readers would already be aware that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's (EPA:BAIN) stock increased significantly by 5.9% over the past week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is:

6.6% = €104m ÷ €1.6b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.07 in profit.

What Is The Relationship Between ROE And 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's Earnings Growth And 6.6% ROE

At first glance, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 10%. Despite this, surprisingly, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco saw an exceptional 52% net income growth over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco'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 24%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco Making Efficient Use Of Its Profits?

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's three-year median payout ratio to shareholders is 6.0%, which is quite low. This implies that the company is retaining 94% of its profits. So it looks like Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco 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.

Summary

On the whole, we do feel that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has some positive attributes. 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. You can see the 1 risk we have identified for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco 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.