Stock Analysis

Could The Market Be Wrong About Centrum Nowoczesnych Technologii S.A. (WSE:CNT) Given Its Attractive Financial Prospects?

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WSE:CNT
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Centrum Nowoczesnych Technologii (WSE:CNT) has had a rough three months with its share price down 24%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Centrum Nowoczesnych Technologii'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Centrum Nowoczesnych Technologii

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 Centrum Nowoczesnych Technologii is:

29% = zł38m ÷ zł134m (Based on the trailing twelve months to September 2022).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each PLN1 of shareholders' capital it has, the company made PLN0.29 in profit.

What Is The Relationship Between ROE And 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 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 Centrum Nowoczesnych Technologii's Earnings Growth And 29% ROE

To begin with, Centrum Nowoczesnych Technologii has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 14% which is quite remarkable. This likely paved the way for the modest 16% net income growth seen by Centrum Nowoczesnych Technologii over the past five years. growth

As a next step, we compared Centrum Nowoczesnych Technologii's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 20% in the same period.

past-earnings-growth
WSE:CNT Past Earnings Growth December 3rd 2022

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Centrum Nowoczesnych Technologii's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Centrum Nowoczesnych Technologii Efficiently Re-investing Its Profits?

Given that Centrum Nowoczesnych Technologii doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

In total, we are pretty happy with Centrum Nowoczesnych Technologii's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 2 risks we have identified for Centrum Nowoczesnych Technologii visit our risks dashboard for free.

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