Operadora de Sites Mexicanos, S.A.B. de C.V.'s (BMV:SITES1A-1) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Most readers would already be aware that Operadora de Sites Mexicanos. de's (BMV:SITES1A-1) stock increased significantly by 37% over the past month. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. In this article, we decided to focus on Operadora de Sites Mexicanos. de's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Operadora de Sites Mexicanos. de

How To Calculate Return On Equity?

ROE 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 Operadora de Sites Mexicanos. de is:

1.9% = Mex$864m ÷ Mex$46b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. That means that for every MX$1 worth of shareholders' equity, the company generated MX$0.02 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. 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.

A Side By Side comparison of Operadora de Sites Mexicanos. de's Earnings Growth And 1.9% ROE

As you can see, Operadora de Sites Mexicanos. de's ROE looks pretty weak. Even when compared to the industry average of 8.0%, the ROE figure is pretty disappointing. In spite of this, Operadora de Sites Mexicanos. de was able to grow its net income considerably, at a rate of 37% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Operadora de Sites Mexicanos. 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 29%.

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). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Operadora de Sites Mexicanos. de's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Operadora de Sites Mexicanos. de Making Efficient Use Of Its Profits?

Operadora de Sites Mexicanos. de's very high LTM (or last twelve month) payout ratio of 256% suggests that the company is paying more to its shareholders than what it is earning. Despite this, the company's earnings grew significantly as we saw above. Having said that, the high payout ratio is definitely risky and something to keep an eye on. You can see the 2 risks we have identified for Operadora de Sites Mexicanos. de by visiting our risks dashboard for free on our platform here.

Additionally, Operadora de Sites Mexicanos. de has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 120% over the next three years. As a result, the expected drop in Operadora de Sites Mexicanos. de's payout ratio explains the anticipated rise in the company's future ROE to 4.9%, over the same period.

Conclusion

On the whole, we feel that the performance shown by Operadora de Sites Mexicanos. de can be open to many interpretations. While the company has posted impressive earnings growth, its poor ROE and low earnings retention makes us doubtful if that growth could continue, if by any chance the business is faced with any sort of risk. 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.

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

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.