Is Country Condo's Limited's (NSE:COUNCODOS) Latest Stock Performance A Reflection Of Its Financial Health?

By
Simply Wall St
Published
March 15, 2022
NSEI:COUNCODOS
Source: Shutterstock

Country Condo's' (NSE:COUNCODOS) stock is up by a considerable 47% over the past 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 Country Condo's' ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Country Condo's

How To Calculate Return On Equity?

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 Country Condo's is:

12% = ₹25m ÷ ₹215m (Based on the trailing twelve months to December 2021).

The 'return' is the yearly profit. That means that for every ₹1 worth of shareholders' equity, the company generated ₹0.12 in profit.

What Has ROE Got To Do With 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.

Country Condo's' Earnings Growth And 12% ROE

At first glance, Country Condo's' ROE doesn't look very promising. Although a closer study shows that the company's ROE is higher than the industry average of 4.1% which we definitely can't overlook. Even more so after seeing Country Condo's' exceptional 26% net income growth over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. For example, it is possible that the broader industry is going through a high growth phase, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Country Condo's' growth is quite high when compared to the industry average growth of 6.0% in the same period, which is great to see.

past-earnings-growth
NSEI:COUNCODOS Past Earnings Growth March 15th 2022

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. If you're wondering about Country Condo's''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Country Condo's Efficiently Re-investing Its Profits?

Country Condo's doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Conclusion

In total, we are pretty happy with Country Condo'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. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. You can see the 3 risks we have identified for Country Condo's by visiting our risks dashboard for free on our platform here.

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