Astrakhan Power Sale Company Public Joint-Stock Company's (MCX:ASSB) Stock Been Rising: Are Strong Financials Guiding The Market?

Most readers would already know that Astrakhan Power Sale Company's (MCX:ASSB) stock increased by 8.8% 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. Particularly, we will be paying attention to Astrakhan Power Sale Company's ROE today.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Astrakhan Power Sale Company

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 Astrakhan Power Sale Company is:

67% = ₽90m ÷ ₽133m (Based on the trailing twelve months to September 2020).

The 'return' is the yearly profit. That means that for every RUB1 worth of shareholders' equity, the company generated RUB0.67 in profit.

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. 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. 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.

Astrakhan Power Sale Company's Earnings Growth And 67% ROE

To begin with, Astrakhan Power Sale Company has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 10% also doesn't go unnoticed by us. So, the substantial 64% net income growth seen by Astrakhan Power Sale Company over the past five years isn't overly surprising.

We then compared Astrakhan Power Sale Company'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 12% 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Astrakhan Power Sale Company's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Astrakhan Power Sale Company Efficiently Re-investing Its Profits?

The three-year median payout ratio for Astrakhan Power Sale Company is 42%, which is moderately low. The company is retaining the remaining 58%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Astrakhan Power Sale Company is reinvesting its earnings efficiently.

Besides, Astrakhan Power Sale Company has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we feel that Astrakhan Power Sale Company's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. Our risks dashboard would have the 3 risks we have identified for Astrakhan Power Sale Company.

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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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