Intrakat Société Anonyme Technical and Energy Projects' (ATH:INKAT) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Intrakat Société Anonyme Technical and Energy Projects' (ATH:INKAT) stock is up by a considerable 68% over the past three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Particularly, we will be paying attention to Intrakat Société Anonyme Technical and Energy Projects' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Intrakat Société Anonyme Technical and Energy Projects

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 Intrakat Société Anonyme Technical and Energy Projects is:

7.0% = €12m ÷ €177m (Based on the trailing twelve months to June 2023).

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 €0.07 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. 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.

A Side By Side comparison of Intrakat Société Anonyme Technical and Energy Projects' Earnings Growth And 7.0% ROE

On the face of it, Intrakat Société Anonyme Technical and Energy Projects' ROE is not much to talk about. Next, when compared to the average industry ROE of 13%, the company's ROE leaves us feeling even less enthusiastic. Given the circumstances, the significant decline in net income by 28% seen by Intrakat Société Anonyme Technical and Energy Projects over the last five years is not surprising. However, there could also be other factors causing the earnings to decline. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

However, when we compared Intrakat Société Anonyme Technical and Energy Projects' growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 42% in the same period. This is quite worrisome.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Intrakat Société Anonyme Technical and Energy Projects fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Intrakat Société Anonyme Technical and Energy Projects Efficiently Re-investing Its Profits?

Intrakat Société Anonyme Technical and Energy Projects doesn't pay any dividend, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Conclusion

On the whole, we feel that the performance shown by Intrakat Société Anonyme Technical and Energy Projects can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 3 risks we have identified for Intrakat Société Anonyme Technical and Energy Projects visit our risks dashboard for free.

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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.