ALTEO Energy Services Public Limited Company's (BUSE:ALTEO) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that ALTEO Energy Services' (BUSE:ALTEO) stock increased significantly by 49% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on ALTEO Energy Services' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for ALTEO Energy Services

How Do You 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 ALTEO Energy Services is:

26% = Ft9.7b ÷ Ft38b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every HUF1 worth of shareholders' equity, the company generated HUF0.26 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.

ALTEO Energy Services' Earnings Growth And 26% ROE

To begin with, ALTEO Energy Services has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 8.7% which is quite remarkable. As a result, ALTEO Energy Services' exceptional 54% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that ALTEO Energy Services' growth is quite high when compared to the industry average growth of 28% in the same period, which is great to see.

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. Is ALTEO Energy Services fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is ALTEO Energy Services Using Its Retained Earnings Effectively?

ALTEO Energy Services' ' three-year median payout ratio is on the lower side at 21% implying that it is retaining a higher percentage (79%) of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Besides, ALTEO Energy Services has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with ALTEO Energy Services' performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial 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. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 2 risks we have identified for ALTEO Energy Services visit our risks dashboard for free.

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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.