Is Time People Group AB (publ)'s (NGM:TPGR) Stock Price Struggling As A Result Of Its Mixed Financials?

It is hard to get excited after looking at Time People Group's (NGM:TPGR) recent performance, when its stock has declined 5.1% over the past week. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Particularly, we will be paying attention to Time People Group'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Time People Group

How To 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 Time People Group is:

14% = kr8.7m ÷ kr62m (Based on the trailing twelve months to July 2020).

The 'return' is the yearly profit. So, this means that for every SEK1 of its shareholder's investments, the company generates a profit of SEK0.14.

What Has ROE Got To Do With 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. 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.

Time People Group's Earnings Growth And 14% ROE

To start with, Time People Group's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 15%. However, we are curious as to how Time People Group's decent returns still resulted in flat growth for Time People Group in the past five years. So, there could be some other aspects that could potentially be preventing the company from growing. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

As a next step, we compared Time People Group's net income growth with the industry and discovered that the industry saw an average growth of 11% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. What is TPGR worth today? The intrinsic value infographic in our free research report helps visualize whether TPGR is currently mispriced by the market.

Is Time People Group Making Efficient Use Of Its Profits?

Time People Group has a high three-year median payout ratio of 91% (or a retention ratio of 9.4%), meaning that the company is paying most of its profits as dividends to its shareholders. This does go some way in explaining why there's been no growth in its earnings.

In addition, Time People Group only recently started paying a dividend so the management must have decided the shareholders prefer dividends over earnings growth.

Summary

In total, we're a bit ambivalent about Time People Group's performance. While the company does have a high rate of return, its low earnings retention is probably what's hampering its earnings growth. Up till now, we've only made a short study of the company's growth data. You can do your own research on Time People Group and see how it has performed in the past by looking at this FREE detailed graph 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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