Declining Stock and Decent Financials: Is The Market Wrong About Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI)?

With its stock down 1.3% over the past month, it is easy to disregard Rami Levi Chain Stores Hashikma Marketing 2006 (TLV:RMLI). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Rami Levi Chain Stores Hashikma Marketing 2006's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Rami Levi Chain Stores Hashikma Marketing 2006

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 Rami Levi Chain Stores Hashikma Marketing 2006 is:

25% = ₪144m ÷ ₪579m (Based on the trailing twelve months to September 2020).

The 'return' is the profit 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 ₪0.25 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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

Rami Levi Chain Stores Hashikma Marketing 2006's Earnings Growth And 25% ROE

To begin with, Rami Levi Chain Stores Hashikma Marketing 2006 has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 18% which is quite remarkable. This likely paved the way for the modest 10% net income growth seen by Rami Levi Chain Stores Hashikma Marketing 2006 over the past five years. growth

Next, on comparing with the industry net income growth, we found that Rami Levi Chain Stores Hashikma Marketing 2006's reported growth was lower than the industry growth of 22% in the same period, which is not something we like to see.

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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Rami Levi Chain Stores Hashikma Marketing 2006's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Rami Levi Chain Stores Hashikma Marketing 2006 Making Efficient Use Of Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we do feel that Rami Levi Chain Stores Hashikma Marketing 2006 has some positive attributes. The company has grown its earnings moderately as previously discussed. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be quite low. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Rami Levi Chain Stores Hashikma Marketing 2006 and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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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