Stock Analysis

Grupo Nacional Provincial, S.A.B.'s (BMV:GNP) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

BMV:GNP *
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Most readers would already know that Grupo Nacional Provincial's (BMV:GNP) stock increased by 2.5% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Grupo Nacional Provincial'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Grupo Nacional Provincial

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 Grupo Nacional Provincial is:

23% = Mex$4.4b ÷ Mex$19b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every MX$1 worth of equity, the company was able to earn MX$0.23 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.

Grupo Nacional Provincial's Earnings Growth And 23% ROE

To start with, Grupo Nacional Provincial's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 15%. This certainly adds some context to Grupo Nacional Provincial's exceptional 36% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Grupo Nacional Provincial's growth is quite high when compared to the industry average growth of 6.2% in the same period, which is great to see.

past-earnings-growth
BMV:GNP * Past Earnings Growth January 19th 2021

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Grupo Nacional Provincial's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Grupo Nacional Provincial Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 66% (implying that it keeps only 34% of profits) for Grupo Nacional Provincial suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Grupo Nacional Provincial is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.

Conclusion

On the whole, we feel that Grupo Nacional Provincial's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. You can do your own research on Grupo Nacional Provincial and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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.
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