- Poland
- /
- Electrical
- /
- WSE:APS
Are Automatyka-Pomiary-Sterowanie S.A.'s (WSE:APS) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?
It is hard to get excited after looking at Automatyka-Pomiary-Sterowanie's (WSE:APS) recent performance, when its stock has declined 24% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Automatyka-Pomiary-Sterowanie'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Automatyka-Pomiary-Sterowanie
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Automatyka-Pomiary-Sterowanie is:
24% = zł2.7m ÷ zł11m (Based on the trailing twelve months to September 2024).
The 'return' is the amount earned after tax over the last twelve months. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.24 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.
Automatyka-Pomiary-Sterowanie's Earnings Growth And 24% ROE
At first glance, Automatyka-Pomiary-Sterowanie seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 24%. This certainly adds some context to Automatyka-Pomiary-Sterowanie's moderate 16% net income growth seen over the past five years.
As a next step, we compared Automatyka-Pomiary-Sterowanie'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 35% in the same period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Automatyka-Pomiary-Sterowanie is trading on a high P/E or a low P/E, relative to its industry.
Is Automatyka-Pomiary-Sterowanie Making Efficient Use Of Its Profits?
Automatyka-Pomiary-Sterowanie's high three-year median payout ratio of 103% suggests that the company is paying out more to its shareholders than what it is making. However, this hasn't really hampered its ability to grow as we saw earlier. That being said, the high payout ratio could be worth keeping an eye on in case the company is unable to keep up its current growth momentum. Our risks dashboard should have the 4 risks we have identified for Automatyka-Pomiary-Sterowanie.
Additionally, Automatyka-Pomiary-Sterowanie has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
On the whole, we do feel that Automatyka-Pomiary-Sterowanie has some positive attributes. As noted earlier, its earnings growth has been quite decent, and the high ROE does contribute to that growth. Still, the company invests little to almost none of its profits. This could potentially reduce the odds that the company continues to see the same level of growth in the future. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Automatyka-Pomiary-Sterowanie's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About WSE:APS
Automatyka-Pomiary-Sterowanie
Provides various services in the fields of industrial automation and electrical works in Poland.
Flawless balance sheet with solid track record and pays a dividend.