Do Its Financials Have Any Role To Play In Driving Bliss GVS Pharma Limited's (NSE:BLISSGVS) Stock Up Recently?

Most readers would already be aware that Bliss GVS Pharma's (NSE:BLISSGVS) stock increased significantly by 15% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Bliss GVS Pharma's ROE today.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Bliss GVS Pharma

How Do You Calculate Return On Equity?

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 Bliss GVS Pharma is:

8.8% = ₹693m ÷ ₹7.8b (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.09 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Bliss GVS Pharma's Earnings Growth And 8.8% ROE

It is quite clear that Bliss GVS Pharma's ROE is rather low. Even compared to the average industry ROE of 14%, the company's ROE is quite dismal. However, the moderate 5.6% net income growth seen by Bliss GVS Pharma over the past five years is definitely a positive. Therefore, the growth in earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Bliss GVS Pharma's reported growth was lower than the industry growth of 16% in the same period, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Bliss GVS Pharma fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bliss GVS Pharma Making Efficient Use Of Its Profits?

In Bliss GVS Pharma's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 8.3% (or a retention ratio of 92%), which suggests that the company is investing most of its profits to grow its business.

Additionally, Bliss GVS Pharma has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

In total, it does look like Bliss GVS Pharma has some positive aspects to its business. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all.

If you decide to trade Bliss GVS Pharma, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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