Do Its Financials Have Any Role To Play In Driving ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság's (BUSE:ENEFI) Stock Up Recently?

ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság's (BUSE:ENEFI) stock is up by a considerable 52% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság's ROE today.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság

How Do You 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 ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság is:

4.1% = Ft175m ÷ Ft4.2b (Based on the trailing twelve months to June 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 HUF0.04 in profit.

What Has ROE Got To Do With 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. 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.

ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság's Earnings Growth And 4.1% ROE

When you first look at it, ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság'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 8.4% either. In spite of this, ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság was able to grow its net income considerably, at a rate of 42% in the last five years. So, there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság'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 7.7% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. 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 ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság Using Its Retained Earnings Effectively?

Conclusion

In total, it does look like ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság has some positive aspects to its business. 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 ENEFI Vagyonkezelo Nyilvánosan Mukodo Részvénytársaság.

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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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