Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A.'s (WSE:TLG) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

With its stock down 13% over the past month, it is easy to disregard Przedsiebiorstwa Telekomunikacyjnego TELGAM (WSE:TLG). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Przedsiebiorstwa Telekomunikacyjnego TELGAM'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.

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How Is ROE Calculated?

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 Przedsiebiorstwa Telekomunikacyjnego TELGAM is:

9.0% = zł659k ÷ zł7.3m (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. That means that for every PLN1 worth of shareholders' equity, the company generated PLN0.09 in profit.

View our latest analysis for Przedsiebiorstwa Telekomunikacyjnego TELGAM

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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 Przedsiebiorstwa Telekomunikacyjnego TELGAM's Earnings Growth And 9.0% ROE

At first glance, Przedsiebiorstwa Telekomunikacyjnego TELGAM's ROE doesn't look very promising. Next, when compared to the average industry ROE of 13%, the company's ROE leaves us feeling even less enthusiastic. Despite this, surprisingly, Przedsiebiorstwa Telekomunikacyjnego TELGAM saw an exceptional 66% net income growth over the past five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Przedsiebiorstwa Telekomunikacyjnego TELGAM's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 0.4%.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Przedsiebiorstwa Telekomunikacyjnego TELGAM's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Przedsiebiorstwa Telekomunikacyjnego TELGAM Making Efficient Use Of Its Profits?

Given that Przedsiebiorstwa Telekomunikacyjnego TELGAM doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

Overall, we feel that Przedsiebiorstwa Telekomunikacyjnego TELGAM certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. To know the 3 risks we have identified for Przedsiebiorstwa Telekomunikacyjnego TELGAM 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.