Is TXCOM Société Anonyme's (EPA:ALTXC) Stock On A Downtrend As A Result Of Its Poor Financials?

With its stock down 19% over the past three months, it is easy to disregard TXCOM Société Anonyme (EPA:ALTXC). We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Specifically, we decided to study TXCOM Société Anonyme's ROE in this article.

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.

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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 TXCOM Société Anonyme is:

1.7% = €180k ÷ €11m (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.02 in profit.

Check out our latest analysis for TXCOM Société Anonyme

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. 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 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.

A Side By Side comparison of TXCOM Société Anonyme's Earnings Growth And 1.7% ROE

As you can see, TXCOM Société Anonyme's ROE looks pretty weak. Even when compared to the industry average of 11%, the ROE figure is pretty disappointing. As a result, TXCOM Société Anonyme's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 8.2% over the last few years.

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. Is TXCOM Société Anonyme fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is TXCOM Société Anonyme Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 64% (meaning, the company retains only 36% of profits) for TXCOM Société Anonyme suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

In addition, TXCOM Société Anonyme has been paying dividends over a period of four years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Summary

In total, we would have a hard think before deciding on any investment action concerning TXCOM Société Anonyme. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. Up till now, we've only made a short study of the company's growth data. To gain further insights into TXCOM Société Anonyme's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.