Are Ormester Vagyonvédelmi Nyrt.'s (BUSE:ORMESTER) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

With its stock down 16% over the past three months, it is easy to disregard Ormester Vagyonvédelmi Nyrt (BUSE:ORMESTER). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Ormester Vagyonvédelmi 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.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Ormester Vagyonvédelmi Nyrt is:

9.0% = Ft58m ÷ Ft640m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. So, this means that for every HUF1 of its shareholder's investments, the company generates a profit of HUF0.09.

See our latest analysis for Ormester Vagyonvédelmi Nyrt

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Ormester Vagyonvédelmi Nyrt's Earnings Growth And 9.0% ROE

When you first look at it, Ormester Vagyonvédelmi Nyrt's ROE doesn't look that attractive. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 12% either. Although, we can see that Ormester Vagyonvédelmi Nyrt saw a modest net income growth of 7.0% over the past five years. So, the growth in the company's earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Ormester Vagyonvédelmi Nyrt's reported growth was lower than the industry growth of 12% over the last few years, which is not something we like to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Ormester Vagyonvédelmi Nyrt's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Ormester Vagyonvédelmi Nyrt Making Efficient Use Of Its Profits?

Given that Ormester Vagyonvédelmi Nyrt doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

Overall, we feel that Ormester Vagyonvédelmi Nyrt certainly does have some positive factors to consider. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all. 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 Ormester Vagyonvédelmi 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.