Stock Analysis

Bet Shemesh Engines Holdings (1997) Ltd's (TLV:BSEN) Stock Is Going Strong: Have Financials A Role To Play?

TASE:BSEN
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Bet Shemesh Engines Holdings (1997)'s (TLV:BSEN) stock is up by a considerable 62% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Bet Shemesh Engines Holdings (1997)'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Bet Shemesh Engines Holdings (1997)

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 Bet Shemesh Engines Holdings (1997) is:

39% = US$60m ÷ US$154m (Based on the trailing twelve months to December 2023).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ₪1 of shareholders' capital it has, the company made ₪0.39 in profit.

Why Is ROE Important For Earnings Growth?

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

Bet Shemesh Engines Holdings (1997)'s Earnings Growth And 39% ROE

To begin with, Bet Shemesh Engines Holdings (1997) has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. So, the substantial 27% net income growth seen by Bet Shemesh Engines Holdings (1997) over the past five years isn't overly surprising.

We then compared Bet Shemesh Engines Holdings (1997)'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 16% in the same 5-year period.

past-earnings-growth
TASE:BSEN Past Earnings Growth May 29th 2024

Earnings growth is a huge factor in stock valuation. 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 Bet Shemesh Engines Holdings (1997)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Bet Shemesh Engines Holdings (1997) Efficiently Re-investing Its Profits?

The really high three-year median payout ratio of 392% for Bet Shemesh Engines Holdings (1997) suggests that the company is paying its shareholders more than what it is earning. In spite of this, the company was able to grow its earnings significantly, as we saw above. Although, it could be worth keeping an eye on the high payout ratio as that's a huge risk. Our risks dashboard should have the 3 risks we have identified for Bet Shemesh Engines Holdings (1997).

Additionally, Bet Shemesh Engines Holdings (1997) has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we feel that Bet Shemesh Engines Holdings (1997) certainly does have some positive factors to consider. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. Up till now, we've only made a short study of the company's growth data. To gain further insights into Bet Shemesh Engines Holdings (1997)'s past profit growth, check out this visualization of past earnings, revenue and cash flows.

Valuation is complex, but we're helping make it simple.

Find out whether Bet Shemesh Engines Holdings (1997) is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.