Centrum Medyczne ENEL-MED S.A.'s (WSE:ENE) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Centrum Medyczne ENEL-MED's (WSE:ENE) stock is up by a considerable 13% over the past month. 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. In this article, we decided to focus on Centrum Medyczne ENEL-MED's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Centrum Medyczne ENEL-MED

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Centrum Medyczne ENEL-MED is:

4.3% = zł7.0m ÷ zł164m (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.04 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.

A Side By Side comparison of Centrum Medyczne ENEL-MED's Earnings Growth And 4.3% ROE

It is hard to argue that Centrum Medyczne ENEL-MED's ROE is much good in and of itself. Even when compared to the industry average of 13%, the ROE figure is pretty disappointing. Although, we can see that Centrum Medyczne ENEL-MED saw a modest net income growth of 8.3% over the past five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Centrum Medyczne ENEL-MED's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 13% in the same period.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Centrum Medyczne ENEL-MED fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Centrum Medyczne ENEL-MED Using Its Retained Earnings Effectively?

Given that Centrum Medyczne ENEL-MED doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

Overall, we feel that Centrum Medyczne ENEL-MED certainly does have some positive factors to consider. Namely, its respectable earnings growth, which it achieved due to it retaining most of its profits. However, given the low ROE, investors may not be benefitting from all that reinvestment after all.

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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.