Stock Analysis

Philippos Nakas S.A.'s (ATH:NAKAS) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

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ATSE:NAKAS
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Most readers would already be aware that Philippos Nakas' (ATH:NAKAS) stock increased significantly by 20% over the past three months. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Particularly, we will be paying attention to Philippos Nakas' 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Philippos Nakas

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 Philippos Nakas is:

8.9% = €1.7m ÷ €19m (Based on the trailing twelve months to June 2023).

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 €0.09.

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. 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.

Philippos Nakas' Earnings Growth And 8.9% ROE

At first glance, Philippos Nakas' ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 8.9%. On the other hand, Philippos Nakas reported a moderate 17% net income growth over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Philippos Nakas' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 14% over the last few years.

past-earnings-growth
ATSE:NAKAS Past Earnings Growth December 8th 2023

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 Philippos Nakas is trading on a high P/E or a low P/E, relative to its industry.

Is Philippos Nakas Using Its Retained Earnings Effectively?

Philippos Nakas has a significant three-year median payout ratio of 91%, meaning that it is left with only 8.9% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Besides, Philippos Nakas has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that the performance shown by Philippos Nakas can be open to many interpretations. Although the company has shown a pretty impressive growth in earnings, yet the low ROE and the low rate of reinvestment makes us skeptical about the continuity of that growth, especially when or if the business comes to face any threats. Up till now, we've only made a short study of the company's growth data. You can do your own research on Philippos Nakas and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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