Grupo Minsa, S.A.B. de C.V. (BMV:MINSAB) Is Up But Financials Look Inconsistent: Which Way Is The Stock Headed?

Grupo Minsa. de's (BMV:MINSAB) stock up by 6.1% over the past three months. However, the company's financials look a bit inconsistent and market outcomes are ultimately driven by long-term fundamentals, meaning that the stock could head in either direction. Specifically, we decided to study Grupo Minsa. de's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Grupo Minsa. de

How Is ROE Calculated?

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 Minsa. de is:

5.7% = Mex$160m ÷ Mex$2.8b (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. So, this means that for every MX$1 of its shareholder's investments, the company generates a profit of MX$0.06.

Why Is ROE Important For 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 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 Minsa. de's Earnings Growth And 5.7% ROE

It is hard to argue that Grupo Minsa. de's ROE is much good in and of itself. Not just that, even compared to the industry average of 9.8%, the company's ROE is entirely unremarkable. Hence, the flat earnings seen by Grupo Minsa. de over the past five years could probably be the result of it having a lower ROE.

We then compared Grupo Minsa. de's net income growth with the industry and found that the average industry growth rate was 5.2% in the same period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Grupo Minsa. de fairly valued compared to other companies? These 3 valuation measures might help you decide.

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

Grupo Minsa. de doesn't pay any dividend, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Conclusion

In total, we're a bit ambivalent about Grupo Minsa. de's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. You can do your own research on Grupo Minsa. de and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

If you’re looking to trade Grupo Minsa. de, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.