Automatyka-Pomiary-Sterowanie S.A.'s (WSE:APS) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Automatyka-Pomiary-Sterowanie (WSE:APS) has had a great run on the share market with its stock up by a significant 21% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You 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 Automatyka-Pomiary-Sterowanie is:

44% = zł8.0m ÷ zł18m (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.44 in profit.

View our latest analysis for Automatyka-Pomiary-Sterowanie

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 Automatyka-Pomiary-Sterowanie's Earnings Growth And 44% ROE

First thing first, we like that Automatyka-Pomiary-Sterowanie has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Under the circumstances, Automatyka-Pomiary-Sterowanie's considerable five year net income growth of 25% was to be expected.

As a next step, we compared Automatyka-Pomiary-Sterowanie'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 19%.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Automatyka-Pomiary-Sterowanie's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Automatyka-Pomiary-Sterowanie Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 93% (implying that it keeps only 7.4% of profits) for Automatyka-Pomiary-Sterowanie suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Automatyka-Pomiary-Sterowanie is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

Overall, we feel that Automatyka-Pomiary-Sterowanie certainly does have some positive factors to consider. Specifically, its high ROE which likely led to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren't necessarily reaping the full benefits of the high rate of return. Up till now, we've only made a short study of the company's growth data. To gain further insights into Automatyka-Pomiary-Sterowanie's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.