Is Comer Industries S.p.A.'s (BIT:COM) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

By
Simply Wall St
Published
December 08, 2020

Most readers would already be aware that Comer Industries' (BIT:COM) stock increased significantly by 19% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Comer Industries' 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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Comer Industries

How To Calculate Return On Equity?

Return on equity 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 Comer Industries is:

12% = €16m ÷ €130m (Based on the trailing twelve months to June 2020).

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 €0.12 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

Comer Industries' Earnings Growth And 12% ROE

To begin with, Comer Industries seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 6.2%. This certainly adds some context to Comer Industries' exceptional 21% net income growth seen over the past five years. We reckon that there could also be other factors at play here. 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 Comer Industries' growth is quite high when compared to the industry average growth of 3.0% in the same period, which is great to see.

BIT:COM Past Earnings Growth December 8th 2020

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Comer Industries fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Comer Industries Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 51% (implying that it keeps only 49% of profits) for Comer Industries suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

While Comer Industries has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.

Summary

In total, we are pretty happy with Comer Industries' performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Comer Industries' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.
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