Is Cohen Development Gas & Oil Ltd.'s (TLV:CDEV) Latest Stock Performance A Reflection Of Its Financial Health?

Cohen Development Gas & Oil (TLV:CDEV) has had a great run on the share market with its stock up by a significant 17% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Cohen Development Gas & Oil's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

How Is ROE Calculated?

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 Cohen Development Gas & Oil is:

60% = US$20m ÷ US$34m (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. That means that for every ₪1 worth of shareholders' equity, the company generated ₪0.60 in profit.

See our latest analysis for Cohen Development Gas & Oil

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. 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 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.

Cohen Development Gas & Oil's Earnings Growth And 60% ROE

First thing first, we like that Cohen Development Gas & Oil has an impressive ROE. Secondly, even when compared to the industry average of 14% the company's ROE is quite impressive. So, the substantial 30% net income growth seen by Cohen Development Gas & Oil over the past five years isn't overly surprising.

Next, on comparing with the industry net income growth, we found that Cohen Development Gas & Oil's growth is quite high when compared to the industry average growth of 1.2% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Cohen Development Gas & Oil fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Cohen Development Gas & Oil Making Efficient Use Of Its Profits?

Cohen Development Gas & Oil has a significant three-year median payout ratio of 85%, meaning the company only retains 15% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Moreover, Cohen Development Gas & Oil is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Conclusion

In total, we are pretty happy with Cohen Development Gas & Oil's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Cohen Development Gas & Oil 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. 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.