Stock Analysis

Is Kino Polska TV Spolka Akcyjna's (WSE:KPL) Recent Stock Performance Tethered To Its Strong Fundamentals?

WSE:KPL
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Most readers would already be aware that Kino Polska TV Spolka Akcyjna's (WSE:KPL) stock increased significantly by 14% over the past month. 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. Particularly, we will be paying attention to Kino Polska TV Spolka Akcyjna's ROE today.

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.

View our latest analysis for Kino Polska TV Spolka Akcyjna

How Do You Calculate Return On Equity?

Return on equity 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 Kino Polska TV Spolka Akcyjna is:

23% = zł50m ÷ zł218m (Based on the trailing twelve months to June 2023).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each PLN1 of shareholders' capital it has, the company made PLN0.23 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Kino Polska TV Spolka Akcyjna's Earnings Growth And 23% ROE

At first glance, Kino Polska TV Spolka Akcyjna seems to have a decent ROE. Especially when compared to the industry average of 16% the company's ROE looks pretty impressive. This certainly adds some context to Kino Polska TV Spolka Akcyjna's decent 14% net income growth seen over the past five years.

We then compared Kino Polska TV Spolka Akcyjna's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 25% in the same 5-year period, which is a bit concerning.

past-earnings-growth
WSE:KPL Past Earnings Growth January 6th 2024

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Kino Polska TV Spolka Akcyjna's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Kino Polska TV Spolka Akcyjna Efficiently Re-investing Its Profits?

Kino Polska TV Spolka Akcyjna's three-year median payout ratio to shareholders is 18% (implying that it retains 82% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Besides, Kino Polska TV Spolka Akcyjna has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that Kino Polska TV Spolka 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 a good amount of 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. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard will have the 1 risk we have identified for Kino Polska TV Spolka Akcyjna.

Valuation is complex, but we're here to simplify it.

Discover if Kino Polska TV Spolka Akcyjna might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.