Is Mendelson Infrastructures & Industries Ltd.'s (TLV:MNIN) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Mendelson Infrastructures & Industries' (TLV:MNIN) stock is up by a considerable 16% 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 Mendelson Infrastructures & Industries' 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Mendelson Infrastructures & Industries

How Is ROE Calculated?

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 Mendelson Infrastructures & Industries is:

7.0% = ₪23m ÷ ₪325m (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every ₪1 worth of equity, the company was able to earn ₪0.07 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.

A Side By Side comparison of Mendelson Infrastructures & Industries' Earnings Growth And 7.0% ROE

At first glance, Mendelson Infrastructures & Industries' ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 6.0%, we may spare it some thought. Moreover, we are quite pleased to see that Mendelson Infrastructures & Industries' net income grew significantly at a rate of 30% over the last five years. Considering the moderately low ROE, it is quite possible that there might be some 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 Mendelson Infrastructures & Industries' 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 6.5% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Mendelson Infrastructures & Industries fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Mendelson Infrastructures & Industries Efficiently Re-investing Its Profits?

The three-year median payout ratio for Mendelson Infrastructures & Industries is 45%, which is moderately low. The company is retaining the remaining 55%. By the looks of it, the dividend is well covered and Mendelson Infrastructures & Industries is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Mendelson Infrastructures & Industries has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, it does look like Mendelson Infrastructures & Industries 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. To know the 1 risk we have identified for Mendelson Infrastructures & Industries visit our risks dashboard for free.

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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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