OPUS GLOBAL Nyrt.'s (BUSE:OPUS) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

OPUS GLOBAL Nyrt (BUSE:OPUS) has had a great run on the share market with its stock up by a significant 21% over the last three months. 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. Specifically, we decided to study OPUS GLOBAL Nyrt's ROE in this article.

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

View our latest analysis for OPUS GLOBAL Nyrt

How To 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 OPUS GLOBAL Nyrt is:

1.5% = Ft3.4b ÷ Ft236b (Based on the trailing twelve months to September 2020).

The 'return' refers to a company's earnings over the last year. That means that for every HUF1 worth of shareholders' equity, the company generated HUF0.01 in profit.

What Has ROE Got To Do With 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.

A Side By Side comparison of OPUS GLOBAL Nyrt's Earnings Growth And 1.5% ROE

It is hard to argue that OPUS GLOBAL Nyrt's ROE is much good in and of itself. Even compared to the average industry ROE of 8.4%, the company's ROE is quite dismal. In spite of this, OPUS GLOBAL Nyrt was able to grow its net income considerably, at a rate of 43% in the last 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.

As a next step, we compared OPUS GLOBAL Nyrt's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 5.1%.

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). Doing so will help them establish if the stock's future looks promising or ominous. Is OPUS GLOBAL Nyrt fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is OPUS GLOBAL Nyrt Making Efficient Use Of Its Profits?

Summary

Overall, we feel that OPUS GLOBAL Nyrt certainly does have some positive factors to consider. 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. Our risks dashboard would have the 4 risks we have identified for OPUS GLOBAL Nyrt.

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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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