Is Bastogi S.p.A.'s (BIT:B) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Bastogi (BIT:B) has had a great run on the share market with its stock up by a significant 22% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Bastogi's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

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 Bastogi is:

7.2% = €6.9m ÷ €95m (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.07 in profit.

Check out our latest analysis for Bastogi

What Has ROE Got To Do With Earnings Growth?

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

Bastogi's Earnings Growth And 7.2% ROE

On the face of it, Bastogi's ROE is not much to talk about. However, its ROE is similar to the industry average of 8.7%, so we won't completely dismiss the company. Moreover, we are quite pleased to see that Bastogi's net income grew significantly at a rate of 40% over the last five years. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Bastogi's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 3.2%.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Bastogi fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bastogi Using Its Retained Earnings Effectively?

Bastogi's three-year median payout ratio to shareholders is 8.8%, which is quite low. This implies that the company is retaining 91% of its profits. So it looks like Bastogi is reinvesting profits heavily to grow its business, which shows in its earnings growth.

While Bastogi has seen growth in its earnings, it only recently started to pay a dividend. It is most likely that the company decided to impress new and existing shareholders with a dividend.

Conclusion

In total, it does look like Bastogi has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. 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. Our risks dashboard would have the 3 risks we have identified for Bastogi.

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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.