Corporación Inmobiliaria Vesta S.A.B. de C.V. (BMV:VESTA) On An Uptrend: Could Fundamentals Be Driving The Stock?

Corporación Inmobiliaria Vesta. de's (BMV:VESTA) stock up by 6.5% over the past three months. 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. Specifically, we decided to study Corporación Inmobiliaria Vesta. de's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Corporación Inmobiliaria Vesta. de

How Do You 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 Corporación Inmobiliaria Vesta. de is:

7.7% = US$81m ÷ US$1.1b (Based on the trailing twelve months to September 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$0.08.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

A Side By Side comparison of Corporación Inmobiliaria Vesta. de's Earnings Growth And 7.7% ROE

As you can see, Corporación Inmobiliaria Vesta. de's ROE looks pretty weak. However, the fact that it is higher than the industry average of 6.2% makes us a bit more interested. Even more so, after seeing Corporación Inmobiliaria Vesta. de's exceptional 23% net income growth over the past five years. That being said, the company does have a low ROE to begin with, just that its higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. Such as high earnings retention or an efficient management in place.

Next, on comparing Corporación Inmobiliaria Vesta. de's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 23% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Corporación Inmobiliaria Vesta. de's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Corporación Inmobiliaria Vesta. de Using Its Retained Earnings Effectively?

Corporación Inmobiliaria Vesta. de's significant three-year median payout ratio of 59% (where it is retaining only 41% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Additionally, Corporación Inmobiliaria Vesta. de has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 59% of its profits over the next three years. Still, forecasts suggest that Corporación Inmobiliaria Vesta. de's future ROE will drop to 6.0% even though the the company's payout ratio is not expected to change by much.

Summary

On the whole, we do feel that Corporación Inmobiliaria Vesta. de has some positive attributes. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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. 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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