Are Robust Financials Driving The Recent Rally In Acartus S.A.'s (WSE:ACA) Stock?

By
Simply Wall St
Published
August 03, 2021
WSE:ACA
Source: Shutterstock

Most readers would already be aware that Acartus' (WSE:ACA) stock increased significantly by 18% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Acartus' ROE today.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Acartus

How Do You 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 Acartus is:

20% = zł244k ÷ zł1.2m (Based on the trailing twelve months to March 2021).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each PLN1 of shareholders' capital it has, the company made PLN0.20 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Acartus' Earnings Growth And 20% ROE

At first glance, Acartus seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 7.4%. This probably laid the ground for Acartus' significant 56% net income growth seen over the past five years. However, there could also be other causes behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Acartus' growth is quite high when compared to the industry average growth of 9.2% in the same period, which is great to see.

past-earnings-growth
WSE:ACA Past Earnings Growth August 4th 2021

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Acartus fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Acartus Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 87% (implying that it keeps only 13% of profits) for Acartus suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Acartus has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we are quite pleased with Acartus' performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Acartus' past profit growth, check out this visualization of past earnings, revenue and cash flows.

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