Will Weakness in Credo Brands Marketing Limited's (NSE:MUFTI) Stock Prove Temporary Given Strong Fundamentals?

With its stock down 21% over the past month, it is easy to disregard Credo Brands Marketing (NSE:MUFTI). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Credo Brands Marketing's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Credo Brands Marketing is:

16% = ₹649m ÷ ₹4.1b (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.16 in profit.

View our latest analysis for Credo Brands Marketing

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Credo Brands Marketing's Earnings Growth And 16% ROE

To start with, Credo Brands Marketing's ROE looks acceptable. Especially when compared to the industry average of 10% the company's ROE looks pretty impressive. Probably as a result of this, Credo Brands Marketing was able to see a decent growth of 19% over the last five years.

As a next step, we compared Credo Brands Marketing's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 33% 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. 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 Credo Brands Marketing is trading on a high P/E or a low P/E, relative to its industry.

Is Credo Brands Marketing Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 28% (implying that the company retains 72% of its profits), it seems that Credo Brands Marketing is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Along with seeing a growth in earnings, Credo Brands Marketing only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.

Conclusion

Overall, we are quite pleased with Credo Brands Marketing's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. 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. You can see the 2 risks we have identified for Credo Brands Marketing by visiting our risks dashboard for free on our platform here.

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

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.