Iktinos Hellas S.A. Greek Marble Industry Technical and Touristic Company's (ATH:IKTIN) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Iktinos Hellas Greek Marble Industry Technical and Touristic (ATH:IKTIN) has had a great run on the share market with its stock up by a significant 20% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Iktinos Hellas Greek Marble Industry Technical and Touristic's ROE in this article.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Iktinos Hellas Greek Marble Industry Technical and Touristic

How Do You Calculate Return On Equity?

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 Iktinos Hellas Greek Marble Industry Technical and Touristic is:

4.2% = €1.9m ÷ €45m (Based on the trailing twelve months to June 2020).

The 'return' is the income the business earned over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.04 in profit.

Why Is ROE Important For 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. 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.

Iktinos Hellas Greek Marble Industry Technical and Touristic's Earnings Growth And 4.2% ROE

As you can see, Iktinos Hellas Greek Marble Industry Technical and Touristic's ROE looks pretty weak. Not just that, even compared to the industry average of 10%, the company's ROE is entirely unremarkable. However, we we're pleasantly surprised to see that Iktinos Hellas Greek Marble Industry Technical and Touristic grew its net income at a significant rate of 26% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Iktinos Hellas Greek Marble Industry Technical and Touristic's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 26% in the same period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Iktinos Hellas Greek Marble Industry Technical and Touristic is trading on a high P/E or a low P/E, relative to its industry.

Is Iktinos Hellas Greek Marble Industry Technical and Touristic Efficiently Re-investing Its Profits?

The three-year median payout ratio for Iktinos Hellas Greek Marble Industry Technical and Touristic is 34%, which is moderately low. The company is retaining the remaining 66%. By the looks of it, the dividend is well covered and Iktinos Hellas Greek Marble Industry Technical and Touristic is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Iktinos Hellas Greek Marble Industry Technical and Touristic is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

Overall, we feel that Iktinos Hellas Greek Marble Industry Technical and Touristic certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. 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. Our risks dashboard would have the 5 risks we have identified for Iktinos Hellas Greek Marble Industry Technical and Touristic.

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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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