Grupo Carso, S.A.B. de C.V.'s (BMV:GCARSOA1) Stock Been Rising: Are Strong Financials Guiding The Market?

Grupo Carso. de's (BMV:GCARSOA1) stock is up by 4.7% over the past week. 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 Grupo Carso. de's 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Grupo Carso. de

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 Grupo Carso. de is:

9.8% = Mex$15b ÷ Mex$151b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every MX$1 worth of shareholders' equity, the company generated MX$0.10 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.

Grupo Carso. de's Earnings Growth And 9.8% ROE

As you can see, Grupo Carso. de's ROE looks pretty weak. Still, the company's ROE is higher than the average industry ROE of 7.3% so that's certainly interesting. Even more so, after seeing Grupo Carso. de's exceptional 20% net income growth over the past five years. That being said, the company does have a low ROE to begin with, just that its higher than the industry average. Hence, there might be some other aspects that are causing earnings to grow. For instance, the company has a low payout ratio or is being managed efficiently

As a next step, we compared Grupo Carso. de's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 18% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. 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 Grupo Carso. de is trading on a high P/E or a low P/E, relative to its industry.

Is Grupo Carso. de Efficiently Re-investing Its Profits?

Grupo Carso. de's three-year median payout ratio to shareholders is 18%, which is quite low. This implies that the company is retaining 82% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

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.

Conclusion

On the whole, we feel that Grupo Carso. de's performance has been quite good. In particular, it's great to see that the company has seen significant growth in its earnings backed by a respectable ROE and a high reinvestment rate. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.