Is DRS Dilip Roadlines Limited's (NSE:DRSDILIP) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

DRS Dilip Roadlines' (NSE:DRSDILIP) stock is up by a considerable 57% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to DRS Dilip Roadlines' ROE today.

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 DRS Dilip Roadlines

How Do You 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 DRS Dilip Roadlines is:

12% = ₹40m ÷ ₹324m (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ₹1 of shareholders' capital it has, the company made ₹0.12 in profit.

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. 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. 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.

A Side By Side comparison of DRS Dilip Roadlines' Earnings Growth And 12% ROE

On the face of it, DRS Dilip Roadlines' ROE is not much to talk about. However, given that the company's ROE is similar to the average industry ROE of 13%, we may spare it some thought. Moreover, we are quite pleased to see that DRS Dilip Roadlines' net income grew significantly at a rate of 23% over the last five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared DRS Dilip Roadlines' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 37% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is DRS Dilip Roadlines fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is DRS Dilip Roadlines Making Efficient Use Of Its Profits?

Given that DRS Dilip Roadlines doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

Overall, we feel that DRS Dilip Roadlines certainly does have some positive factors to consider. 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. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 1 risk we have identified for DRS Dilip Roadlines visit our risks dashboard for free.

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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.