Has Automatyka-Pomiary-Sterowanie S.A.'s (WSE:APS) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Most readers would already be aware that Automatyka-Pomiary-Sterowanie's (WSE:APS) stock increased significantly by 51% 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. Particularly, we will be paying attention to Automatyka-Pomiary-Sterowanie's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View 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:

22% = zł2.2m ÷ zł10m (Based on the trailing twelve months to September 2023).

The 'return' is the yearly profit. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.22 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Automatyka-Pomiary-Sterowanie's Earnings Growth And 22% ROE

At first glance, Automatyka-Pomiary-Sterowanie seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 17%. This certainly adds some context to Automatyka-Pomiary-Sterowanie's exceptional 22% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then compared Automatyka-Pomiary-Sterowanie's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 34% in the same 5-year period, which is a bit concerning.

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). Doing so will help them establish if the stock's future looks promising or ominous. 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 Efficiently Re-investing Its Profits?

Automatyka-Pomiary-Sterowanie has very a high three-year median payout ratio of 126% suggesting that the company's shareholders are getting paid from more than just the company's earnings. Despite this, the company's earnings grew significantly as we saw above. Although, it could be worth keeping an eye on the high payout ratio as that's a huge risk. You can see the 4 risks we have identified for Automatyka-Pomiary-Sterowanie by visiting our risks dashboard for free on our platform here.

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.

Conclusion

Overall, we feel that Automatyka-Pomiary-Sterowanie certainly does have some positive factors to consider. The company has grown its earnings moderately as a result of its impressive ROE. Yet, the business is retaining hardly any of its profits. This might have negative implications on the company's future growth. 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.