Grupa Pracuj S.A.'s (WSE:GPP) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Grupa Pracuj (WSE:GPP) has had a rough three months with its share price down 29%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Grupa Pracuj'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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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 Grupa Pracuj is:

49% = zł233m ÷ zł474m (Based on the trailing twelve months to September 2025).

The 'return' is the income the business earned over the last year. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.49 in profit.

See our latest analysis for Grupa Pracuj

Why Is ROE Important For 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 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.

Grupa Pracuj's Earnings Growth And 49% ROE

First thing first, we like that Grupa Pracuj has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 22% also doesn't go unnoticed by us. Yet, Grupa Pracuj has posted measly growth of 3.3% over the past five years. This is generally not the case as when a company has a high rate of return it should usually also have a high earnings growth rate. Such a scenario is likely to take place when a company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

Next, on comparing with the industry net income growth, we found that Grupa Pracuj's reported growth was lower than the industry growth of 9.1% over the last few years, which is not something we like to see.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Has the market priced in the future outlook for GPP? You can find out in our latest intrinsic value infographic research report.

Is Grupa Pracuj Efficiently Re-investing Its Profits?

With a high three-year median payout ratio of 68% (or a retention ratio of 32%), most of Grupa Pracuj's profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.

Moreover, Grupa Pracuj has been paying dividends for four years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 69%. Accordingly, forecasts suggest that Grupa Pracuj's future ROE will be 50% which is again, similar to the current ROE.

Summary

On the whole, we do feel that Grupa Pracuj has some positive attributes. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE. Bear in mind, the company reinvests a small portion of its profits, which means that investors aren't reaping the benefits of the high rate of return. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.