Fibra Mty, S.A.P.I. de C.V. (BMV:FMTY14) On An Uptrend: Could Fundamentals Be Driving The Stock?

Fibra MtyP.I. de's (BMV:FMTY14) stock is up by 3.6% over the past month. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Fibra MtyP.I. 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 Fibra MtyP.I. de

How To 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 Fibra MtyP.I. de is:

1.3% = Mex$156m ÷ Mex$12b (Based on the trailing twelve months to December 2020).

The 'return' is the profit over the last twelve months. So, this means that for every MX$1 of its shareholder's investments, the company generates a profit of MX$0.01.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Fibra MtyP.I. de's Earnings Growth And 1.3% ROE

As you can see, Fibra MtyP.I. de's ROE looks pretty weak. Not just that, even compared to the industry average of 4.6%, the company's ROE is entirely unremarkable. Therefore, Fibra MtyP.I. de's flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared Fibra MtyP.I. de's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 0.2%.

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. Has the market priced in the future outlook for FMTY 14? You can find out in our latest intrinsic value infographic research report.

Is Fibra MtyP.I. de Making Efficient Use Of Its Profits?

Fibra MtyP.I. de seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 75%, meaning that the company retains only 25% of its profits. However, this is typical for REITs as they are often required by law to distribute most of their earnings. So this probably explains the absence of growth in earnings.

In addition, Fibra MtyP.I. de has been paying dividends over a period of six years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 142% over the next three years. However, Fibra MtyP.I. de's future ROE is expected to rise to 7.6% despite the expected increase in the company's payout ratio. We infer that there could be other factors that could be driving the anticipated growth in the company's ROE.

Summary

Overall, we feel that Fibra MtyP.I. de certainly does have some positive factors to consider. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

If you’re looking to trade Fibra MtyP.I. 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.