Is S.C. ArcelorMittal Hunedoara S.A.'s (BVB:SIDG) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that S.C. ArcelorMittal Hunedoara's (BVB:SIDG) stock increased significantly by 29% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to S.C. ArcelorMittal Hunedoara's ROE today.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for S.C. ArcelorMittal Hunedoara

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. ArcelorMittal Hunedoara is:

23% = RON64m ÷ RON282m (Based on the trailing twelve months to March 2024).

The 'return' is the profit over the last twelve months. That means that for every RON1 worth of shareholders' equity, the company generated RON0.23 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 S.C. ArcelorMittal Hunedoara's Earnings Growth And 23% ROE

At first glance, S.C. ArcelorMittal Hunedoara seems to have a decent ROE. On comparing with the average industry ROE of 6.4% the company's ROE looks pretty remarkable. Yet, S.C. ArcelorMittal Hunedoara has posted measly growth of 3.8% over the past five years. This is interesting as the high returns should mean that the company has the ability to generate high growth but for some reason, it hasn't been able to do so. We reckon that a low growth, when returns are quite high could be the result of certain circumstances like low earnings retention or poor allocation of capital.

As a next step, we compared S.C. ArcelorMittal Hunedoara'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 22% in the same period.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. 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 S.C. ArcelorMittal Hunedoara is trading on a high P/E or a low P/E, relative to its industry.

Is S.C. ArcelorMittal Hunedoara Efficiently Re-investing Its Profits?

S.C. ArcelorMittal Hunedoara doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This doesn't explain the low earnings growth number that we discussed above. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.

Conclusion

In total, it does look like S.C. ArcelorMittal Hunedoara has some positive aspects to its business. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing 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 S.C. ArcelorMittal Hunedoara visit our risks dashboard for free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.