S.C. Semrom Oltenia S.A. (BVB:SEOL) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

S.C. Semrom Oltenia (BVB:SEOL) has had a great run on the share market with its stock up by a significant 11% over the last week. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study S.C. Semrom Oltenia'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 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?

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 S.C. Semrom Oltenia is:

3.8% = RON384k ÷ RON10m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each RON1 of shareholders' capital it has, the company made RON0.04 in profit.

Check out our latest analysis for S.C. Semrom Oltenia

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 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.

S.C. Semrom Oltenia's Earnings Growth And 3.8% ROE

As you can see, S.C. Semrom Oltenia's ROE looks pretty weak. Further, we noted that the company's ROE is similar to the industry average of 3.8%. Therefore, it might not be wrong to say that the five year net income decline of 43% seen by S.C. Semrom Oltenia was possibly a result of the disappointing ROE.

That being said, we compared S.C. Semrom Oltenia's performance with the industry and were concerned when we found that while the company has shrunk its earnings, the industry has grown its earnings at a rate of 17% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is S.C. Semrom Oltenia fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is S.C. Semrom Oltenia Using Its Retained Earnings Effectively?

While the company did payout a portion of its dividend in the past, it currently doesn't pay a regular dividend. This implies that potentially all of its profits are being reinvested in the business.

Summary

In total, we're a bit ambivalent about S.C. Semrom Oltenia's performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. Wrapping up, we would proceed with caution with this company and one way of doing that would be to look at the risk profile of the business. Our risks dashboard would have the 4 risks we have identified for S.C. Semrom Oltenia.

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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.