Do Its Financials Have Any Role To Play In Driving Société Marseillaise du Tunnel Prado Carénage's (EPA:SMTPC) Stock Up Recently?

Société Marseillaise du Tunnel Prado Carénage's (EPA:SMTPC) stock is up by a considerable 16% 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 Société Marseillaise du Tunnel Prado Carénage's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Société Marseillaise du Tunnel Prado Carénage

How Do You Calculate Return On Equity?

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 Marseillaise du Tunnel Prado Carénage is:

12% = €8.5m ÷ €68m (Based on the trailing twelve months to December 2020).

The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.12.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

Société Marseillaise du Tunnel Prado Carénage's Earnings Growth And 12% ROE

At first glance, Société Marseillaise du Tunnel Prado Carénage seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 10%. Needless to say, we are quite surprised to see that Société Marseillaise du Tunnel Prado Carénage's net income shrunk at a rate of 6.4% over the past five years. Therefore, there might be some other aspects that could explain this. These include low earnings retention or poor allocation of capital.

However, when we compared Société Marseillaise du Tunnel Prado Carénage's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 23% in the same period. This is quite worrisome.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is SMTPC fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Société Marseillaise du Tunnel Prado Carénage Making Efficient Use Of Its Profits?

While the company did payout a portion of its dividend in the past, it currently doesn't pay a dividend. This implies that potentially all of its profits are being reinvested in the business.

Our latest analyst data shows that the future payout ratio of the company is expected to rise to 116% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.

Summary

Overall, we feel that Société Marseillaise du Tunnel Prado Carénage certainly does have some positive factors to consider. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE. Bear in mind, the company reinvests a small portion of its profits, which means that investors aren't reaping the benefits of the high rate of return. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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