Is Hopscotch Global PR Group's (EPA:ALHOP) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that Hopscotch Global PR Group's (EPA:ALHOP) stock increased significantly by 42% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Hopscotch Global PR Group's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Hopscotch Global PR Group

How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Hopscotch Global PR Group is:

16% = €5.2m ÷ €31m (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.16 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Hopscotch Global PR Group's Earnings Growth And 16% ROE

To start with, Hopscotch Global PR Group's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 13%. This probably laid the ground for Hopscotch Global PR Group's moderate 19% net income growth seen over the past five years.

As a next step, we compared Hopscotch Global PR Group'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 11%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Hopscotch Global PR Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Hopscotch Global PR Group Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 34% (implying that the company retains 66% of its profits), it seems that Hopscotch Global PR Group is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, Hopscotch Global PR Group is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 27% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.

Summary

Overall, we are quite pleased with Hopscotch Global PR Group's performance. 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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.