Polskie Towarzystwo Wspierania Przedsiebiorczosci S.A.'s (WSE:PTW) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Most readers would already be aware that Polskie Towarzystwo Wspierania Przedsiebiorczosci's (WSE:PTW) stock increased significantly by 17% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Polskie Towarzystwo Wspierania Przedsiebiorczosci's ROE in this article.

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

See our latest analysis for Polskie Towarzystwo Wspierania Przedsiebiorczosci

How Is ROE Calculated?

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 Polskie Towarzystwo Wspierania Przedsiebiorczosci is:

14% = zł3.2m ÷ zł24m (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. So, this means that for every PLN1 of its shareholder's investments, the company generates a profit of PLN0.14.

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. 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 Polskie Towarzystwo Wspierania Przedsiebiorczosci's Earnings Growth And 14% ROE

At first glance, Polskie Towarzystwo Wspierania Przedsiebiorczosci seems to have a decent ROE. Even so, when compared with the average industry ROE of 18%, we aren't very excited. Although, we can see that Polskie Towarzystwo Wspierania Przedsiebiorczosci saw a modest net income growth of 14% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently. Bear in mind, the company does have a respectable level of ROE. It is just that the industry ROE is higher. So this also provides some context to the earnings growth seen by the company.

Next, on comparing with the industry net income growth, we found that Polskie Towarzystwo Wspierania Przedsiebiorczosci's reported growth was lower than the industry growth of 24% over the last few years, which is not something we like to see.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. What is PTW worth today? The intrinsic value infographic in our free research report helps visualize whether PTW is currently mispriced by the market.

Is Polskie Towarzystwo Wspierania Przedsiebiorczosci Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 75% (or a retention ratio of 25%) for Polskie Towarzystwo Wspierania Przedsiebiorczosci suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Polskie Towarzystwo Wspierania Przedsiebiorczosci has paid dividends over a period of nine years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

Overall, we feel that Polskie Towarzystwo Wspierania Przedsiebiorczosci certainly does have some positive factors to consider. True, the company has posted a respectable growth in earnings. However, the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paying out less dividends. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Polskie Towarzystwo Wspierania Przedsiebiorczosci'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. 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.