Is Transilvania Broker de Asigurare S.A.'s (BVB:TBK) Stock Price Struggling As A Result Of Its Mixed Financials?

Transilvania Broker de Asigurare (BVB:TBK) has had a rough three months with its share price down 16%. It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. In this article, we decided to focus on Transilvania Broker de Asigurare's ROE.

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.

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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 Transilvania Broker de Asigurare is:

27% = RON2.5m ÷ RON9.3m (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every RON1 worth of shareholders' equity, the company generated RON0.27 in profit.

Check out our latest analysis for Transilvania Broker de Asigurare

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 Transilvania Broker de Asigurare's Earnings Growth And 27% ROE

To begin with, Transilvania Broker de Asigurare has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Given the circumstances, we can't help but wonder why Transilvania Broker de Asigurare saw little to no growth in the past five years. So, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital

As a next step, we compared Transilvania Broker de Asigurare's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 5.3% in the same period.

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. 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 Transilvania Broker de Asigurare is trading on a high P/E or a low P/E, relative to its industry.

Is Transilvania Broker de Asigurare Efficiently Re-investing Its Profits?

Transilvania Broker de Asigurare has a very high three-year median payout ratio of 101% over the last last three years, which suggests that the company is dipping into more than just its earnings to pay its dividend. The absence of growth in Transilvania Broker de Asigurare's earnings therefore, doesn't come as a surprise. Paying a dividend beyond their means is usually not viable over the long term. This is indicative of risk. You can see the 4 risks we have identified for Transilvania Broker de Asigurare by visiting our risks dashboard for free on our platform here.

In addition, Transilvania Broker de Asigurare has been paying dividends over a period of seven years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth.

Summary

Overall, we have mixed feelings about Transilvania Broker de Asigurare. In spite of the high ROE, the company has failed to see growth in its earnings due to it paying out most of its profits as dividend, with almost nothing left to invest into its own business. 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 Transilvania Broker de Asigurare'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. 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.