Stock Analysis

Is JWW Invest S.A.'s (WSE:JWW) Stock Price Struggling As A Result Of Its Mixed Financials?

WSE:JWW
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With its stock down 35% over the past three months, it is easy to disregard JWW Invest (WSE:JWW). It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Particularly, we will be paying attention to JWW Invest's ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for JWW Invest

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 JWW Invest is:

8.1% = zł2.0m ÷ zł25m (Based on the trailing twelve months to June 2020).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.08 in profit.

What Has ROE Got To Do With 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. 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.

JWW Invest's Earnings Growth And 8.1% ROE

On the face of it, JWW Invest's ROE is not much to talk about. Next, when compared to the average industry ROE of 14%, the company's ROE leaves us feeling even less enthusiastic. As a result, JWW Invest's flat net income growth over the past five years doesn't come as a surprise given its lower ROE.

As a next step, we compared JWW Invest's net income growth with the industry and discovered that the industry saw an average growth of 9.9% in the same period.

past-earnings-growth
WSE:JWW Past Earnings Growth November 24th 2020

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. 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 JWW Invest is trading on a high P/E or a low P/E, relative to its industry.

Is JWW Invest Making Efficient Use Of Its Profits?

Conclusion

In total, we're a bit ambivalent about JWW Invest's performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Up till now, we've only made a short study of the company's growth data. You can do your own research on JWW Invest and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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Valuation is complex, but we're helping make it simple.

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This article by Simply Wall St is general in nature. 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.
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