ANY Biztonsági Nyomda Nyrt. (BUSE:ANY) Stock Is Going Strong But Fundamentals Look Uncertain: What Lies Ahead ?

Most readers would already be aware that ANY Biztonsági Nyomda Nyrt's (BUSE:ANY) stock increased significantly by 15% over the past three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Particularly, we will be paying attention to ANY Biztonsági Nyomda Nyrt's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for ANY Biztonsági Nyomda Nyrt

How Do You 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 ANY Biztonsági Nyomda Nyrt is:

12% = Ft971m ÷ Ft8.1b (Based on the trailing twelve months to September 2020).

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 HUF0.12 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. 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.

ANY Biztonsági Nyomda Nyrt's Earnings Growth And 12% ROE

At first glance, ANY Biztonsági Nyomda Nyrt seems to have a decent ROE. Especially when compared to the industry average of 9.9% the company's ROE looks pretty impressive. As you might expect, the 4.3% net income decline reported by ANY Biztonsági Nyomda Nyrt is a bit of a surprise. Therefore, there might be some other aspects that could explain this. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

That being said, we compared ANY Biztonsági Nyomda Nyrt's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 8.6% in the same period.

Earnings growth is a huge factor in stock valuation. 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. What is ANY worth today? The intrinsic value infographic in our free research report helps visualize whether ANY is currently mispriced by the market.

Is ANY Biztonsági Nyomda Nyrt Efficiently Re-investing Its Profits?

ANY Biztonsági Nyomda Nyrt's declining earnings is not surprising given how the company is spending most of its profits in paying dividends, judging by its three-year median payout ratio of 100% (or a retention ratio of 0.009%). The business is only left with a small pool of capital to reinvest - A vicious cycle that doesn't benefit the company in the long-run. To know the 4 risks we have identified for ANY Biztonsági Nyomda Nyrt visit our risks dashboard for free.

Moreover, ANY Biztonsági Nyomda Nyrt has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 102%. However, ANY Biztonsági Nyomda Nyrt's ROE is predicted to rise to 21% despite there being no anticipated change in its payout ratio.

Conclusion

Overall, we have mixed feelings about ANY Biztonsági Nyomda Nyrt. While the company does have a high rate of return, its low earnings retention is probably what's hampering its earnings growth. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of ANY Biztonsági Nyomda Nyrt's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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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