Most readers would already know that the PPC (JSE:PPC) share price has increased by 5.3% over the past three months. However, stock prices tend to align with a company's long-term financial performance, so we decided to investigate the company's various fundamentals to assess what impact this might have on its future share price. . In particular, I would like to pay attention to PPC's ROE today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis on PPC.
How do I calculate return on equity?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, PPC's ROE is:
3.9% = R260 million ÷ R670 million (based on the trailing twelve months to September 2023).
“Revenue” is the income a company has earned over the past year. Another way to think of it is that for every ZAR1 worth of shares, the company could earn him ZAR0.04 in profit.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company's growth potential. Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
PPC revenue growth and ROE 3.9%
It's hard to argue that PPC's ROE is very good on its own. Not only that, but compared to the industry average of 16%, the company's ROE is completely unremarkable. Considering the circumstances, it is not surprising that over the past five years he has seen an 11% decline in PPC's net income. We believe there may be other aspects that are negatively impacting the company's earnings outlook. For example, the company has a very high dividend payout ratio or faces competitive pressures.
That being said, we compared PPC's performance to the industry and found that while the company's profits have been shrinking, the industry has grown profits at a rate of 9.2% over the same five-year period, which is concerning. I held it.
Earnings growth is a big factor in stock valuation. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. Doing so will help you determine whether a stock's future is promising or ominous. If you're wondering about PPC's valuation, check out this gauge of its price-to-earnings ratio compared to its industry.
Is PPC leveraging profits efficiently?
PPC does not pay dividends. This means the company keeps all of its profits. It makes you wonder why you're keeping profits if you can't use them to grow your business. Therefore, there may be other factors at play here that could potentially inhibit growth. For example, businesses are facing some headwinds.
summary
Overall, PPC performance is a bit murky. Even if it appears to be retaining most of its profits, investors may not be benefiting from reinvestment after all, given the low ROE. Low revenue growth suggests that our theory is correct. In conclusion, we would proceed with caution in doing business with this company, and one way to do so is by looking at the risk profile of the business. Visit our His website to learn about the four risks of His PPC that we have identified. risk dashboard It is available for free on this platform.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
