Is S.N.T.G.N. Transgaz S.A.'s (BVB:TGN) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

S.N.T.G.N. Transgaz's (BVB:TGN) stock is up by a considerable 14% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study S.N.T.G.N. Transgaz'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.

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How Do You 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.N.T.G.N. Transgaz is:

14% = RON669m ÷ RON4.9b (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every RON1 worth of equity, the company was able to earn RON0.14 in profit.

See our latest analysis for S.N.T.G.N. Transgaz

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.N.T.G.N. Transgaz's Earnings Growth And 14% ROE

On the face of it, S.N.T.G.N. Transgaz's ROE is not much to talk about. Although a closer study shows that the company's ROE is higher than the industry average of 11% which we definitely can't overlook. This probably goes some way in explaining S.N.T.G.N. Transgaz's moderate 12% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

We then compared S.N.T.G.N. Transgaz'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 1.5% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is S.N.T.G.N. Transgaz fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is S.N.T.G.N. Transgaz Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 51% (or a retention ratio of 49%) for S.N.T.G.N. Transgaz suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, S.N.T.G.N. Transgaz is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 41%. However, S.N.T.G.N. Transgaz's future ROE is expected to decline to 9.8% despite there being not much change anticipated in the company's payout ratio.

Summary

In total, it does look like S.N.T.G.N. Transgaz has some positive aspects to its business. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.