Is Becle, S.A.B. de C.V.'s (BMV:CUERVO) Stock Price Struggling As A Result Of Its Mixed Financials?

It is hard to get excited after looking at Becle. de's (BMV:CUERVO) recent performance, when its stock has declined 27% over the past three months. It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Particularly, we will be paying attention to Becle. 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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Becle. de

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Becle. de is:

5.9% = Mex$4.0b ÷ Mex$67b (Based on the trailing twelve months to December 2024).

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$0.06 in profit.

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. 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.

Becle. de's Earnings Growth And 5.9% ROE

As you can see, Becle. de's ROE looks pretty weak. Even compared to the average industry ROE of 12%, the company's ROE is quite dismal. Hence, the flat earnings seen by Becle. de over the past five years could probably be the result of it having a lower ROE.

We then compared Becle. de's net income growth with the industry and found that the average industry growth rate was 7.3% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is CUERVO * fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Becle. de Making Efficient Use Of Its Profits?

Despite having a normal three-year median payout ratio of 30% (implying that the company keeps 70% of its income) over the last three years, Becle. de has seen a negligible amount of growth in earnings as we saw above. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

In addition, Becle. de has been paying dividends over a period of seven years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 33%. Regardless, the future ROE for Becle. de is predicted to rise to 9.7% despite there being not much change expected in its payout ratio.

Conclusion

Overall, we have mixed feelings about Becle. de. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. 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.