Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A.'s (WSE:TLG) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Przedsiebiorstwa Telekomunikacyjnego TELGAM (WSE:TLG) has had a great run on the share market with its stock up by a significant 11% over the last week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. 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 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 Przedsiebiorstwa Telekomunikacyjnego TELGAM is:

6.7% = zł504k ÷ zł7.5m (Based on the trailing twelve months to June 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every PLN1 worth of equity, the company was able to earn PLN0.07 in profit.

Check out our latest analysis for Przedsiebiorstwa Telekomunikacyjnego TELGAM

Why Is ROE Important For 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Przedsiebiorstwa Telekomunikacyjnego TELGAM's Earnings Growth And 6.7% ROE

It is quite clear that Przedsiebiorstwa Telekomunikacyjnego TELGAM's ROE is rather low. Even when compared to the industry average of 9.2%, the ROE figure is pretty disappointing. Despite this, surprisingly, Przedsiebiorstwa Telekomunikacyjnego TELGAM saw an exceptional 65% net income growth over the past five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

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 16%.

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. 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 Przedsiebiorstwa Telekomunikacyjnego TELGAM is trading on a high P/E or a low P/E, relative to its industry.

Is Przedsiebiorstwa Telekomunikacyjnego TELGAM Using Its Retained Earnings Effectively?

Przedsiebiorstwa Telekomunikacyjnego TELGAM doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

On the whole, we do feel that Przedsiebiorstwa Telekomunikacyjnego TELGAM has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. 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.