Cyfrowe Centrum Serwisowe Spólka Akcyjna (WSE:CCS) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at Cyfrowe Centrum Serwisowe Spólka Akcyjna's (WSE:CCS) recent performance, when its stock has declined 22% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Cyfrowe Centrum Serwisowe Spólka Akcyjna's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Cyfrowe Centrum Serwisowe Spólka Akcyjna

How To 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 Cyfrowe Centrum Serwisowe Spólka Akcyjna is:

38% = zł5.1m ÷ zł14m (Based on the trailing twelve months to December 2022).

The 'return' is the amount earned after tax over the last twelve months. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.38 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Cyfrowe Centrum Serwisowe Spólka Akcyjna's Earnings Growth And 38% ROE

First thing first, we like that Cyfrowe Centrum Serwisowe Spólka Akcyjna has an impressive ROE. Secondly, even when compared to the industry average of 19% the company's ROE is quite impressive. As a result, Cyfrowe Centrum Serwisowe Spólka Akcyjna's exceptional 51% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Cyfrowe Centrum Serwisowe Spólka Akcyjna's growth is quite high when compared to the industry average growth of 41% in the same period, which is great to see.

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). This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Cyfrowe Centrum Serwisowe Spólka Akcyjna is trading on a high P/E or a low P/E, relative to its industry.

Is Cyfrowe Centrum Serwisowe Spólka Akcyjna Making Efficient Use Of Its Profits?

Cyfrowe Centrum Serwisowe Spólka Akcyjna has a three-year median payout ratio of 34% (where it is retaining 66% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Cyfrowe Centrum Serwisowe Spólka Akcyjna is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Conclusion

Overall, we are quite pleased with Cyfrowe Centrum Serwisowe Spólka Akcyjna's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. To know the 4 risks we have identified for Cyfrowe Centrum Serwisowe 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.