OPUS GLOBAL Nyrt (BUSE:OPUS) has had a great run on the share market with its stock up by a significant 177% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on OPUS GLOBAL Nyrt's 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for OPUS GLOBAL Nyrt is:
9.8% = Ft33b ÷ Ft338b (Based on the trailing twelve months to March 2023).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every HUF1 worth of equity, the company was able to earn HUF0.10 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. 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.
OPUS GLOBAL Nyrt's Earnings Growth And 9.8% ROE
To begin with, OPUS GLOBAL Nyrt seems to have a respectable ROE. Even when compared to the industry average of 8.9% the company's ROE looks quite decent. This certainly adds some context to OPUS GLOBAL Nyrt's moderate 18% net income growth seen over the past five years.
We then compared OPUS GLOBAL Nyrt's 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 14% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is OPUS GLOBAL Nyrt fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is OPUS GLOBAL Nyrt Efficiently Re-investing Its Profits?
OPUS GLOBAL Nyrt doesn't pay any dividend, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.
Overall, we are quite pleased with OPUS GLOBAL Nyrt's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard would have the 3 risks we have identified for OPUS GLOBAL Nyrt.
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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.