Parcel Technik S.A.'s (WSE:PTE) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

By
Simply Wall St
Published
May 26, 2021
WSE:PTE
Source: Shutterstock

Most readers would already be aware that Parcel Technik's (WSE:PTE) stock increased significantly by 99% 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. Specifically, we decided to study Parcel Technik's ROE in this article.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Parcel Technik

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 Parcel Technik is:

49% = zł3.2m ÷ zł6.5m (Based on the trailing twelve months to March 2021).

The 'return' is the yearly profit. One way to conceptualize this is that for each PLN1 of shareholders' capital it has, the company made PLN0.49 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 Parcel Technik's Earnings Growth And 49% ROE

To begin with, Parcel Technik has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 18% also doesn't go unnoticed by us. Under the circumstances, Parcel Technik's considerable five year net income growth of 39% was to be expected.

We then compared Parcel Technik's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 5.9% in the same period.

past-earnings-growth
WSE:PTE Past Earnings Growth May 27th 2021

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Parcel Technik's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Parcel Technik Making Efficient Use Of Its Profits?

Summary

Overall, we are quite pleased with Parcel Technik'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. 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. You can see the 4 risks we have identified for Parcel Technik by visiting our risks dashboard for free on our platform here.

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