Maytronics Ltd. (TLV:MTRN) Stock's On A Decline: Are Poor Fundamentals The Cause?

It is hard to get excited after looking at Maytronics' (TLV:MTRN) recent performance, when its stock has declined 45% over the past three months. To decide if this trend could continue, we decided to look at its weak fundamentals as they shape the long-term market trends. Specifically, we decided to study Maytronics' ROE in this article.

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.

View our latest analysis for Maytronics

How To 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 Maytronics is:

7.6% = ₪65m ÷ ₪859m (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₪1 of shareholders' capital it has, the company made ₪0.08 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 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.

Maytronics' Earnings Growth And 7.6% ROE

When you first look at it, Maytronics' ROE doesn't look that attractive. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 16%. Thus, the low net income growth of 2.8% seen by Maytronics over the past five years could probably be the result of the low ROE.

We then compared Maytronics' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 11% in the same 5-year period, which is a bit concerning.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Maytronics fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Maytronics Making Efficient Use Of Its Profits?

With a high three-year median payout ratio of 54% (or a retention ratio of 46%), most of Maytronics' profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

Moreover, Maytronics has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Summary

Overall, we would be extremely cautious before making any decision on Maytronics. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. In brief, we think the company is risky and investors should think twice before making any final judgement on this company. Our risks dashboard would have the 4 risks we have identified for Maytronics.

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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.