Is Telemedycyna Polska S.A.'s(WSE:TMP) Recent Stock Performance Tethered To Its Strong Fundamentals?

Telemedycyna Polska's (WSE:TMP) stock is up by a considerable 30% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Telemedycyna Polska's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Telemedycyna Polska

How Do You Calculate Return On Equity?

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 Telemedycyna Polska is:

11% = zł325k ÷ zł2.9m (Based on the trailing twelve months to December 2020).

The 'return' is the income the business earned over the last year. So, this means that for every PLN1 of its shareholder's investments, the company generates a profit of PLN0.11.

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. 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 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.

Telemedycyna Polska's Earnings Growth And 11% ROE

At first glance, Telemedycyna Polska seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 12%. Given the circumstances, we can't help but wonder why Telemedycyna Polska saw little to no growth in the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

We then performed a comparison between Telemedycyna Polska's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 0.7% in the same period.

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about Telemedycyna Polska's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Telemedycyna Polska Using Its Retained Earnings Effectively?

Conclusion

Overall, we are quite pleased with Telemedycyna Polska's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Telemedycyna Polska's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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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