4MASS Spólka Akcyjna's (WSE:4MS) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

With its stock down 26% over the past three months, it is easy to disregard 4MASS Spólka Akcyjna (WSE:4MS). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on 4MASS Spólka Akcyjna's ROE.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for 4MASS Spólka Akcyjna is:

26% = zł18m ÷ zł70m (Based on the trailing twelve months to September 2024).

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 PLN0.26 in profit.

View our latest analysis for 4MASS Spólka Akcyjna

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

4MASS Spólka Akcyjna's Earnings Growth And 26% ROE

First thing first, we like that 4MASS Spólka Akcyjna has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. Under the circumstances, 4MASS Spólka Akcyjna's considerable five year net income growth of 63% was to be expected.

Next, on comparing with the industry net income growth, we found that 4MASS Spólka Akcyjna's growth is quite high when compared to the industry average growth of 7.2% in the same period, which is great to see.

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 4MASS Spólka Akcyjna fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is 4MASS Spólka Akcyjna Using Its Retained Earnings Effectively?

4MASS Spólka Akcyjna doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

On the whole, we feel that 4MASS Spólka Akcyjna's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard would have the 2 risks we have identified for 4MASS Spólka Akcyjna.

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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.