Is Genomma Lab Internacional, S.A.B. de C.V.'s (BMV:LABB) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Most readers would already be aware that Genomma Lab Internacional. de's (BMV:LABB) stock increased significantly by 17% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Genomma Lab Internacional. de's ROE today.

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.

See our latest analysis for Genomma Lab Internacional. de

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for Genomma Lab Internacional. de is:

12% = Mex$1.3b ÷ Mex$11b (Based on the trailing twelve months to June 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each MX$1 of shareholders' capital it has, the company made MX$0.12 in profit.

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. 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.

Genomma Lab Internacional. de's Earnings Growth And 12% ROE

When you first look at it, Genomma Lab Internacional. de's ROE doesn't look that attractive. However, the fact that the company's ROE is higher than the average industry ROE of 10%, is definitely interesting. Consequently, this likely laid the ground for the decent growth of 6.2% seen over the past five years by Genomma Lab Internacional. de. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Genomma Lab Internacional. de compares quite favourably to the industry average, which shows a decline of 2.8% over the last few years.

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). This then helps them determine if the stock is placed for a bright or bleak future. What is LAB B worth today? The intrinsic value infographic in our free research report helps visualize whether LAB B is currently mispriced by the market.

Is Genomma Lab Internacional. de Using Its Retained Earnings Effectively?

Genomma Lab Internacional. de has a three-year median payout ratio of 29%, which implies that it retains the remaining 71% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Additionally, Genomma Lab Internacional. de has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Genomma Lab Internacional. de's performance. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.