Is Grupo Comercial Chedraui, S.A.B. de C.V.'s (BMV:CHDRAUIB) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers would already be aware that Grupo Comercial Chedraui. de's (BMV:CHDRAUIB) stock increased significantly by 33% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Grupo Comercial Chedraui. de's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Grupo Comercial Chedraui. de

How Do You Calculate Return On Equity?

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 Comercial Chedraui. de is:

17% = Mex$7.9b ÷ Mex$46b (Based on the trailing twelve months to December 2023).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every MX$1 of its shareholder's investments, the company generates a profit of MX$0.17.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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 Comercial Chedraui. de's Earnings Growth And 17% ROE

To begin with, Grupo Comercial Chedraui. de seems to have a respectable ROE. Even when compared to the industry average of 18% the company's ROE looks quite decent. This certainly adds some context to Grupo Comercial Chedraui. de's exceptional 36% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Grupo Comercial Chedraui. de'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 18%.

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 CHDRAUI B fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Grupo Comercial Chedraui. de Efficiently Re-investing Its Profits?

Grupo Comercial Chedraui. de's ' three-year median payout ratio is on the lower side at 14% implying that it is retaining a higher percentage (86%) of its profits. So it looks like Grupo Comercial Chedraui. de is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Grupo Comercial Chedraui. de has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 14%. However, Grupo Comercial Chedraui. de's ROE is predicted to rise to 21% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that Grupo Comercial Chedraui. de's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.