Is Themis G.R.E.N. Ltd's (TLV:TMIS) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Themis G.R.E.N's (TLV:TMIS) stock is up by a considerable 45% 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 Themis G.R.E.N's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Themis G.R.E.N

How Do You Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Themis G.R.E.N is:

43% = ₪34m ÷ ₪79m (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. Another way to think of that is that for every ₪1 worth of equity, the company was able to earn ₪0.43 in profit.

What Has ROE Got To Do With Earnings Growth?

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

Themis G.R.E.N's Earnings Growth And 43% ROE

Firstly, we acknowledge that Themis G.R.E.N has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 22% also doesn't go unnoticed by us. As a result, Themis G.R.E.N's exceptional 40% net income growth seen over the past five years, doesn't come as a surprise.

We then compared Themis G.R.E.N'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 8.4% in the same 5-year 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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Themis G.R.E.N's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Themis G.R.E.N Using Its Retained Earnings Effectively?

Themis G.R.E.N has a significant LTM (or last twelve month) payout ratio of 94%, meaning the company only retains 5.8% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Besides, Themis G.R.E.N has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we do feel that Themis G.R.E.N has some positive attributes. 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. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Themis G.R.E.N's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.