Are Strong Financial Prospects The Force That Is Driving The Momentum In El-Mor Electric Installation & Services (1986) Ltd.'s TLV:ELMR) Stock?

El-Mor Electric Installation & Services (1986) (TLV:ELMR) has had a great run on the share market with its stock up by a significant 19% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on El-Mor Electric Installation & Services (1986)'s ROE.

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.

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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 El-Mor Electric Installation & Services (1986) is:

12% = ₪35m ÷ ₪295m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. That means that for every ₪1 worth of shareholders' equity, the company generated ₪0.12 in profit.

View our latest analysis for El-Mor Electric Installation & Services (1986)

What Is The Relationship Between ROE And 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.

El-Mor Electric Installation & Services (1986)'s Earnings Growth And 12% ROE

To begin with, El-Mor Electric Installation & Services (1986) seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 6.0%. This probably laid the ground for El-Mor Electric Installation & Services (1986)'s moderate 7.1% net income growth seen over the past five years.

We then compared El-Mor Electric Installation & Services (1986)'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 3.6% in the same 5-year period.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about El-Mor Electric Installation & Services (1986)'s's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is El-Mor Electric Installation & Services (1986) Efficiently Re-investing Its Profits?

El-Mor Electric Installation & Services (1986) has a healthy combination of a moderate three-year median payout ratio of 50% (or a retention ratio of 50%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Besides, El-Mor Electric Installation & Services (1986) has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with El-Mor Electric Installation & Services (1986)'s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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 1 risk we have identified for El-Mor Electric Installation & Services (1986) 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.