Promotora y Operadora de Infraestructura, S. A. B. de C. V. (BMV:PINFRA) On An Uptrend: Could Fundamentals Be Driving The Stock?

Promotora y Operadora de Infraestructura S. A. B. de C. V's (BMV:PINFRA) stock up by 8.7% 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. In this article, we decided to focus on Promotora y Operadora de Infraestructura S. A. B. de C. V's ROE.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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

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

15% = Mex$9.7b ÷ Mex$64b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. That means that for every MX$1 worth of shareholders' equity, the company generated 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. 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. 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.

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. Promotora y Operadora de Infraestructura S. A. B. de C. V was still able to see a decent net income growth of 13% over the past five years. So, 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 Promotora y Operadora de Infraestructura S. A. B. de C. V's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 22% 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. This then helps them determine if the stock is placed for a bright or bleak future. Is Promotora y Operadora de Infraestructura S. A. B. de C. V fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Promotora y Operadora de Infraestructura S. A. B. de C. V Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 38% (implying that the company retains 62% of its profits), it seems that Promotora y Operadora de Infraestructura S. A. B. de C. V is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, Promotora y Operadora de Infraestructura S. A. B. de C. V has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 55% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.

Summary

Overall, we feel that Promotora y Operadora de Infraestructura S. A. B. de C. V certainly does have some positive factors to consider. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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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.