Is PJSC ALROSA-Nyurba's (MCX:ALNU) Latest Stock Performance Being Led By Its Strong Fundamentals?

By
Simply Wall St
Published
May 13, 2021
MISX:ALNU

Most readers would already know that PJSC ALROSA-Nyurba's (MCX:ALNU) stock increased by 6.5% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study PJSC ALROSA-Nyurba's ROE in this article.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for PJSC ALROSA-Nyurba

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for PJSC ALROSA-Nyurba is:

31% = ₽17b ÷ ₽56b (Based on the trailing twelve months to December 2020).

The 'return' is the yearly profit. Another way to think of that is that for every RUB1 worth of equity, the company was able to earn RUB0.31 in profit.

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of PJSC ALROSA-Nyurba's Earnings Growth And 31% ROE

First thing first, we like that PJSC ALROSA-Nyurba has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 10% also doesn't go unnoticed by us. This probably laid the groundwork for PJSC ALROSA-Nyurba's moderate 5.1% net income growth seen over the past five years.

Given that the industry shrunk its earnings at a rate of 0.4% in the same period, the net income growth of the company is quite impressive.

past-earnings-growth
MISX:ALNU Past Earnings Growth May 14th 2021

Earnings growth is an important metric to consider when valuing a stock. 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 PJSC ALROSA-Nyurba fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is PJSC ALROSA-Nyurba Efficiently Re-investing Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Summary

Overall, we are quite pleased with PJSC ALROSA-Nyurba's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into PJSC ALROSA-Nyurba'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. 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.
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