Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock is up by a considerable 39% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Loma Negra Compañía Industrial Argentina Sociedad Anónima'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

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 Loma Negra Compañía Industrial Argentina Sociedad Anónima is:

10.0% = AR$71b ÷ AR$715b (Based on the trailing twelve months to September 2024).

The 'return' is the income the business earned over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.10.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 10.0% ROE

At first glance, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE doesn't look very promising. Next, when compared to the average industry ROE of 16%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Loma Negra Compañía Industrial Argentina Sociedad Anónima was able to grow its net income considerably, at a rate of 48% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Loma Negra Compañía Industrial Argentina Sociedad Anónima'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 21% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Loma Negra Compañía Industrial Argentina Sociedad Anónima is trading on a high P/E or a low P/E, relative to its industry.

Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Using Its Retained Earnings Effectively?

Loma Negra Compañía Industrial Argentina Sociedad Anónima's three-year median payout ratio to shareholders is 22%, which is quite low. This implies that the company is retaining 78% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Besides, Loma Negra Compañía Industrial Argentina Sociedad Anónima has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 64% over the next three years. Still, forecasts suggest that Loma Negra Compañía Industrial Argentina Sociedad Anónima's future ROE will rise to 15% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.

Conclusion

Overall, we feel that Loma Negra Compañía Industrial Argentina Sociedad Anónima certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.