Coral India Finance and Housing Limited's (NSE:CORALFINAC) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

By
Simply Wall St
Published
September 27, 2021
NSEI:CORALFINAC
Source: Shutterstock

Most readers would already be aware that Coral India Finance and Housing's (NSE:CORALFINAC) stock increased significantly by 31% over the past week. 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. Specifically, we decided to study Coral India Finance and Housing's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Coral India Finance and Housing

How Do You 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 Coral India Finance and Housing is:

11% = ₹137m ÷ ₹1.3b (Based on the trailing twelve months to June 2021).

The 'return' is the income the business earned over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.11 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. 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.

Coral India Finance and Housing's Earnings Growth And 11% ROE

At first glance, Coral India Finance and Housing's ROE doesn't look very promising. However, the fact that the its ROE is quite higher to the industry average of 8.1% doesn't go unnoticed by us. Still, Coral India Finance and Housing's net income growth of 3.5% over the past five years was mediocre at best. Bear in mind, the company does have a low ROE. It is just that the industry ROE is lower. Hence, this goes some way in explaining the low earnings growth.

Given that the industry shrunk its earnings at a rate of 1.7% in the same period, the net income growth of the company is quite impressive.

past-earnings-growth
NSEI:CORALFINAC Past Earnings Growth September 28th 2021

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Coral India Finance and Housing fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Coral India Finance and Housing Making Efficient Use Of Its Profits?

Coral India Finance and Housing has a low three-year median payout ratio of 12% (meaning, the company keeps the remaining 88% of profits) which means that the company is retaining more of its earnings. This should be reflected in its earnings growth number, but that's not the case. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Moreover, Coral India Finance and Housing has been paying dividends for seven years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Conclusion

In total, we are pretty happy with Coral India Finance and Housing's performance. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard would have the 3 risks we have identified for Coral India Finance and Housing.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

If you're looking to trade Coral India Finance and Housing, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.Promoted

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.


Simply Wall St character - Warren

Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.