Eurasia Fonciere Investissements Société Anonyme's (EPA:EFI) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Eurasia Fonciere Investissements Société Anonyme's (EPA:EFI) stock is up by a considerable 101% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Eurasia Fonciere Investissements Société Anonyme'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Eurasia Fonciere Investissements Société Anonyme

How To Calculate Return On Equity?

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 Eurasia Fonciere Investissements Société Anonyme is:

6.2% = €1.6m ÷ €26m (Based on the trailing twelve months to December 2019).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.06.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Eurasia Fonciere Investissements Société Anonyme's Earnings Growth And 6.2% ROE

At first glance, Eurasia Fonciere Investissements Société Anonyme's ROE doesn't look very promising. Next, when compared to the average industry ROE of 9.3%, the company's ROE leaves us feeling even less enthusiastic. However, the moderate 17% net income growth seen by Eurasia Fonciere Investissements Société Anonyme over the past five years is definitely a positive. So, the growth in the company's earnings could probably have been caused by other variables. 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 Eurasia Fonciere Investissements Société Anonyme's growth is quite high when compared to the industry average growth of 13% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Eurasia Fonciere Investissements Société Anonyme's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Eurasia Fonciere Investissements Société Anonyme Using Its Retained Earnings Effectively?

Summary

In total, it does look like Eurasia Fonciere Investissements Société Anonyme has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. 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. To know the 3 risks we have identified for Eurasia Fonciere Investissements Société Anonyme visit our risks dashboard for free.

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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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