Are Robust Financials Driving The Recent Rally In S.C. Artego S.A.'s (BVB:ARTE) Stock?

Most readers would already be aware that S.C. Artego's (BVB:ARTE) stock increased significantly by 16% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to S.C. Artego's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for S.C. Artego

How Do You 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 S.C. Artego is:

12% = RON11m ÷ RON87m (Based on the trailing twelve months to December 2020).

The 'return' is the income the business earned over the last year. So, this means that for every RON1 of its shareholder's investments, the company generates a profit of RON0.12.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

S.C. Artego's Earnings Growth And 12% ROE

To begin with, S.C. Artego seems to have a respectable ROE. Especially when compared to the industry average of 4.8% the company's ROE looks pretty impressive. This probably laid the ground for S.C. Artego's moderate 8.9% net income growth seen over the past five years.

Next, on comparing S.C. Artego's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.9% in the same period.

Earnings growth is a huge factor in stock valuation. 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. Is S.C. Artego fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is S.C. Artego Using Its Retained Earnings Effectively?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

Overall, we are quite pleased with S.C. Artego's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into S.C. Artego'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. 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.
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