Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) Has Fared Decently But Fundamentals Look Uncertain: What Lies Ahead For The Stock?

Promotora y Operadora de Infraestructura S. A. B. de C. V's (BMV:PINFRA) stock up by 2.2% over the past three months. Given that the stock prices usually follow long-term business performance, we wonder if the company's mixed financials could have any adverse effect on its current price price movement Particularly, we will be paying attention to Promotora y Operadora de Infraestructura S. A. B. de C. V'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Promotora y Operadora de Infraestructura S. A. B. de C. V

How To Calculate Return On Equity?

Return on equity 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 Promotora y Operadora de Infraestructura S. A. B. de C. V is:

15% = Mex$9.3b ÷ Mex$61b (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$0.15 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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 Promotora y Operadora de Infraestructura S. A. B. de C. V's Earnings Growth And 15% ROE

On the face of it, Promotora y Operadora de Infraestructura S. A. B. de C. V's ROE is not much to talk about. Next, when compared to the average industry ROE of 23%, the company's ROE leaves us feeling even less enthusiastic. However, the moderate 10% net income growth seen by Promotora y Operadora de Infraestructura S. A. B. de C. V over the past five years is definitely a positive. So, the growth in the company's earnings could probably have been caused by other variables. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Promotora y Operadora de Infraestructura S. A. B. de C. V's reported growth was lower than the industry growth of 21% over the last few years, which is not something we like to see.

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. What is PINFRA * worth today? The intrinsic value infographic in our free research report helps visualize whether PINFRA * is currently mispriced by the market.

Is Promotora y Operadora de Infraestructura S. A. B. de C. V Using Its Retained Earnings Effectively?

While Promotora y Operadora de Infraestructura S. A. B. de C. V has a three-year median payout ratio of 51% (which means it retains 49% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Promotora y Operadora de Infraestructura S. A. B. de C. V has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 45%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 14%.

Conclusion

On the whole, we feel that the performance shown by Promotora y Operadora de Infraestructura S. A. B. de C. V can be open to many interpretations. While the company has posted a decent earnings growth, We do feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings at a higher rate of return. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.