Has Becle, S.A.B. de C.V. (BMV:CUERVO) Stock's Recent Performance Got Anything to Do With Its Financial Health?

By
Simply Wall St
Published
July 25, 2021
BMV:CUERVO *
Source: Shutterstock

Becle. de's (BMV:CUERVO) stock up by 6.6% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Becle. 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Becle. de

How To 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 Becle. de is:

10% = Mex$5.7b ÷ Mex$57b (Based on the trailing twelve months to March 2021).

The 'return' is the profit 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 Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Becle. de's Earnings Growth And 10% ROE

At first glance, Becle. de's ROE doesn't look very promising. However, its ROE is similar to the industry average of 13%, so we won't completely dismiss the company. Even so, Becle. de has shown a fairly decent growth in its net income which grew at a rate of 8.6%. 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. Such as - high earnings retention or an efficient management in place.

We then compared Becle. de's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 4.8% in the same period.

past-earnings-growth
BMV:CUERVO * Past Earnings Growth July 25th 2021

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is CUERVO * fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Becle. de Using Its Retained Earnings Effectively?

Becle. de has a healthy combination of a moderate three-year median payout ratio of 36% (or a retention ratio of 64%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Moreover, Becle. de is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend.

Summary

In total, it does look like Becle. 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. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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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