Do Its Financials Have Any Role To Play In Driving Menivim - The New Reit Ltd's (TLV:MNRT) Stock Up Recently?

Most readers would already be aware that Menivim - The New Reit's (TLV:MNRT) stock increased significantly by 24% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Menivim - The New Reit's ROE.

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.

See our latest analysis for Menivim - The New Reit

How To Calculate Return On Equity?

Return on equity 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 Menivim - The New Reit is:

4.8% = ₪49m ÷ ₪1.0b (Based on the trailing twelve months to September 2020).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every ₪1 of its shareholder's investments, the company generates a profit of ₪0.05.

Why Is ROE Important For 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Menivim - The New Reit's Earnings Growth And 4.8% ROE

On the face of it, Menivim - The New Reit's ROE is not much to talk about. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.5%. Moreover, we are quite pleased to see that Menivim - The New Reit's net income grew significantly at a rate of 68% 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. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Menivim - The New Reit's growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Menivim - The New Reit is trading on a high P/E or a low P/E, relative to its industry.

Is Menivim - The New Reit Making Efficient Use Of Its Profits?

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

Summary

In total, it does look like Menivim - The New Reit 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. Our risks dashboard would have the 3 risks we have identified for Menivim - The New Reit.

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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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