The Farm 51 Group Spólka Akcyjna's (WSE:F51) Stock Is Rallying But Financials Look Ambiguous: Will The Momentum Continue?

Farm 51 Group Spólka Akcyjna (WSE:F51) has had a great run on the share market with its stock up by a significant 16% over the last three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. In this article, we decided to focus on Farm 51 Group Spólka Akcyjna'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.

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How To Calculate Return On Equity?

ROE 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 Farm 51 Group Spólka Akcyjna is:

12% = zł2.6m ÷ zł22m (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.12 in profit.

View our latest analysis for Farm 51 Group Spólka Akcyjna

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

A Side By Side comparison of Farm 51 Group Spólka Akcyjna's Earnings Growth And 12% ROE

At first glance, Farm 51 Group Spólka Akcyjna's ROE doesn't look very promising. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 16% either. Given the circumstances, the significant decline in net income by 8.5% seen by Farm 51 Group Spólka Akcyjna over the last five years is not surprising. We reckon that there could also be other factors at play here. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

Next, when we compared with the industry, which has shrunk its earnings at a rate of 5.8% in the same 5-year period, we still found Farm 51 Group Spólka Akcyjna's performance to be quite bleak, because the company has been shrinking its earnings faster than the industry.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is Farm 51 Group Spólka Akcyjna fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Farm 51 Group Spólka Akcyjna Making Efficient Use Of Its Profits?

Farm 51 Group Spólka Akcyjna doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Summary

In total, we're a bit ambivalent about Farm 51 Group Spólka Akcyjna's performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. To know the 4 risks we have identified for Farm 51 Group Spólka Akcyjna visit our risks dashboard for free.

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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.