PVA TePla (ETR:TPE) had a tough month, with its share price down 8.1%. But if you pay close attention, given how the market typically rewards companies with strong financial health, the company's strong financials could mean a higher share price over the long term. You may be wondering if that means something. In particular, I would like to pay attention to PVA TePla's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. Simply put, it is used to evaluate a company's profitability compared to its equity.
Check out our latest analysis for PVA TePla.
How do I calculate return on equity?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, PVA TePla's ROE is:
19% = €24 million ÷ €127 million (based on the trailing twelve months to December 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. Another way to think of it is that for every 1 euro worth of stock, the company allowed him to earn a profit of 0.19 euros.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE is a measure of a company's profitability. 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.
PVA TePla's revenue growth and ROE 19%
At first glance, PVA TePla appears to have a decent ROE. Even compared to the industry average of 17%, the company's ROE looks pretty decent. This probably goes some way to explaining PVA TePla's impressive 27% growth in net income over the past five years, among other factors. We think there may be other aspects that are positively impacting the company's earnings growth. For example, a company with a low dividend payout ratio or a company with efficient management.
As a next step, we compared PVA TePla's net income growth with the industry and found that the company has a similar growth rate when compared to the industry average growth rate of 33% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. Investors should check whether expected growth or decline in earnings has been factored in in any case. This will help you determine whether the stock's future is bright or bleak. Is TPE fairly valued? This infographic on a company's intrinsic value has everything you need to know.
Does PVA TePla reinvest its profits efficiently?
Given that PVA TePla does not pay dividends to shareholders, we can assume that the company reinvests all of its profits into business growth.
summary
Overall, I'm very happy with the performance of PVA TePla. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page for the company .
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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.
