Has As Commercial Industrial Company of Computers and Toys S.A.'s (ATH:ASCO) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

As Commercial Industrial Company of Computers and Toys' (ATH:ASCO) stock is up by a considerable 7.4% over the past month. 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. In this article, we decided to focus on As Commercial Industrial Company of Computers and Toys' ROE.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for As Commercial Industrial Company of Computers and Toys

How Is ROE Calculated?

ROE 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 As Commercial Industrial Company of Computers and Toys is:

5.5% = €1.7m ÷ €31m (Based on the trailing twelve months to June 2020).

The 'return' is the income the business earned over the last year. 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?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

As Commercial Industrial Company of Computers and Toys' Earnings Growth And 5.5% ROE

It is hard to argue that As Commercial Industrial Company of Computers and Toys' ROE is much good in and of itself. Even compared to the average industry ROE of 15%, the company's ROE is quite dismal. As Commercial Industrial Company of Computers and Toys was still able to see a decent net income growth of 12% over the past five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared As Commercial Industrial Company of Computers and Toys' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 8.7% in the same period.

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. If you're wondering about As Commercial Industrial Company of Computers and Toys''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is As Commercial Industrial Company of Computers and Toys Efficiently Re-investing Its Profits?

Summary

On the whole, we do feel that As Commercial Industrial Company of Computers and Toys has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. 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 2 risks we have identified for As Commercial Industrial Company of Computers and Toys 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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