Are Grupa Kety S.A.'s (WSE:KTY) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Grupa Kety (WSE:KTY) has had a rough three months with its share price down 4.0%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Grupa Kety's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Grupa Kety is:

26% = zł532m ÷ zł2.1b (Based on the trailing twelve months to March 2025).

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 PLN0.26.

Check out our latest analysis for Grupa Kety

What Has ROE Got To Do With 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.

Grupa Kety's Earnings Growth And 26% ROE

Firstly, we acknowledge that Grupa Kety has a significantly high ROE. Secondly, even when compared to the industry average of 7.5% the company's ROE is quite impressive. Probably as a result of this, Grupa Kety was able to see a decent net income growth of 5.9% over the last five years.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Grupa Kety compares quite favourably to the industry average, which shows a decline of 0.9% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for KTY? You can find out in our latest intrinsic value infographic research report.

Is Grupa Kety Using Its Retained Earnings Effectively?

Grupa Kety has a significant three-year median payout ratio of 94%, meaning that it is left with only 5.9% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Grupa Kety has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 93%. Regardless, the future ROE for Grupa Kety is predicted to rise to 37% despite there being not much change expected in its payout ratio.

Summary

In total, it does look like Grupa Kety has some positive aspects to its business. Specifically, its high ROE which likely led to the growth in earnings. Bear in mind, the company reinvests little to none of its profits, which means that investors aren't necessarily reaping the full benefits of the high rate of return. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.