S.C. Comalim S.A.'s (BVB:MALI) Stock Going Strong But Fundamentals Look Weak: What Implications Could This Have On The Stock?

S.C. Comalim (BVB:MALI) has had a great run on the share market with its stock up by a significant 30% over the last week. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimately dictates market outcomes. In this article, we decided to focus on S.C. Comalim'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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. Comalim is:

1.2% = RON255k ÷ RON21m (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every RON1 of its shareholder's investments, the company generates a profit of RON0.01.

Check out our latest analysis for S.C. Comalim

What Is The Relationship Between ROE And 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 S.C. Comalim's Earnings Growth And 1.2% ROE

It is quite clear that S.C. Comalim's ROE is rather low. Even compared to the average industry ROE of 5.4%, the company's ROE is quite dismal. Therefore, it might not be wrong to say that the five year net income decline of 28% seen by S.C. Comalim was possibly a result of it having a lower ROE. However, there could also be other factors causing the earnings to decline. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

However, when we compared S.C. Comalim's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 8.0% in the same period. This is quite worrisome.

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). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about S.C. Comalim's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

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

S.C. Comalim's very high three-year median payout ratio of 125% over the last three years suggests that the company is paying its shareholders more than what it is earning and this explains the company's shrinking earnings. Paying a dividend higher than reported profits is not a sustainable move. To know the 5 risks we have identified for S.C. Comalim visit our risks dashboard for free.

Additionally, S.C. Comalim has paid dividends over a period of four years, which means that the company's management is rather focused on keeping up its dividend payments, regardless of the shrinking earnings.

Conclusion

On the whole, S.C. Comalim's performance is quite a big let-down. Specifically, it has shown quite an unsatisfactory performance as far as earnings growth is concerned, and a poor ROE and an equally poor rate of reinvestment seem to be the reason behind this inadequate performance. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of S.C. Comalim's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.