Dhruv Consultancy Services Limited's (NSE:DHRUV) Stock is Soaring But Financials Seem Inconsistent: Will The Uptrend Continue?

Dhruv Consultancy Services' (NSE:DHRUV) stock is up by a considerable 69% over the past three months. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Particularly, we will be paying attention to Dhruv Consultancy Services' ROE today.

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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Dhruv Consultancy Services

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Dhruv Consultancy Services is:

9.3% = ₹56m ÷ ₹599m (Based on the trailing twelve months to December 2023).

The 'return' refers to a company's earnings over the last year. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.09 in profit.

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. 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.

Dhruv Consultancy Services' Earnings Growth And 9.3% ROE

On the face of it, Dhruv Consultancy Services' ROE is not much to talk about. Next, when compared to the average industry ROE of 12%, the company's ROE leaves us feeling even less enthusiastic. As a result, Dhruv Consultancy Services' flat net income growth over the past five years doesn't come as a surprise given its lower ROE.

As a next step, we compared Dhruv Consultancy Services' net income growth with the industry and discovered that the industry saw an average growth of 19% in the same period.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Dhruv Consultancy Services''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dhruv Consultancy Services Making Efficient Use Of Its Profits?

Summary

Overall, we have mixed feelings about Dhruv Consultancy Services. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. 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 Dhruv Consultancy Services 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.