Grupo Carso, S.A.B. de C.V. (BMV:GCARSOA1) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

Grupo Carso. de (BMV:GCARSOA1) has had a rough week with its share price down 7.9%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Grupo Carso. de's ROE in this article.

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.

View our latest analysis for Grupo Carso. de

How Do You 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 Grupo Carso. de is:

9.3% = Mex$13b ÷ Mex$145b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every MX$1 worth of equity, the company was able to earn MX$0.09 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. 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.

Grupo Carso. de's Earnings Growth And 9.3% ROE

As you can see, Grupo Carso. de's ROE looks pretty weak. An industry comparison shows that the company's ROE is not much different from the industry average of 9.3% either. Looking at Grupo Carso. de's exceptional 20% five-year net income growth in particular, we are definitely impressed. We reckon that there could also be other factors at play thats influencing the company's growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between Grupo Carso. de's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 18% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Grupo Carso. de fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Grupo Carso. de Making Efficient Use Of Its Profits?

Grupo Carso. de's ' three-year median payout ratio is on the lower side at 17% implying that it is retaining a higher percentage (83%) of its profits. So it looks like Grupo Carso. de is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Grupo Carso. de is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 40% over the next three years.

Summary

In total, it does look like Grupo Carso. de has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.