Comaliment SA (Resita)'s (BVB:OMAL) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

With its stock down 30% over the past week, it is easy to disregard Comaliment SA (Resita) (BVB:OMAL). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Comaliment SA (Resita)'s ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Comaliment SA (Resita)

How Do You Calculate Return On Equity?

ROE 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 Comaliment SA (Resita) is:

5.6% = RON123k ÷ RON2.2m (Based on the trailing twelve months to December 2023).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every RON1 worth of equity, the company was able to earn RON0.06 in profit.

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. 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.

Comaliment SA (Resita)'s Earnings Growth And 5.6% ROE

It is hard to argue that Comaliment SA (Resita)'s ROE is much good in and of itself. An industry comparison shows that the company's ROE is not much different from the industry average of 5.2% either. However, the exceptional 71% net income growth seen by Comaliment SA (Resita) over the past five years is pretty remarkable. We reckon that there could also be other factors at play thats influencing the company's growth. 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.

We then compared Comaliment SA (Resita)'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 4.5% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Comaliment SA (Resita) fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Comaliment SA (Resita) Efficiently Re-investing Its Profits?

Given that Comaliment SA (Resita) 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.

Conclusion

On the whole, we do feel that Comaliment SA (Resita) has some positive attributes. 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. You can see the 3 risks we have identified for Comaliment SA (Resita) by visiting our risks dashboard for free on our platform here.

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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.