Bhagyanagar Properties (NSE: BHAGYAPROP) has seen strong growth in the equity market with a significant 14% increase in its shares over the past three months. Since stock prices are generally aligned with a company’s long-term financial performance, we decided to take a closer look at its financial metrics to see if they had a role to play in the recent price movement. . In this article, we have decided to focus on the ROE of Bhagyanagar Properties.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for Bhagyanagar properties
How to calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of the properties of Bhagyanagar is:
2.1% = ₹ 25m ÷ ₹ 1.2b (Based on the last twelve months up to June 2021).
The “return” is the profit of the last twelve months. This means that for every 1 of equity, the company generated 0.02 of profit.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the company. Assuming everything is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics. .
Bhagyanagar Properties profit growth and 2.1% ROE
As you can see, the ROE of Bhagyanagar Properties seems quite low. Even compared to the industry average ROE of 4.0%, the company’s ROE is pretty dismal. However, the moderate 7.9% net income growth observed by Bhagyanagar Properties over the past five years is certainly positive. We believe that there could be other aspects that positively influence the company’s profit growth. Such as – high profit retention or effective management in place.
We then compared the net income growth of Bhagyanagar Properties with the industry and we are happy to see that the growth figure of the company is higher than that of the industry which has a growth rate of 5.5. % during the same period.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps him determine whether the stock is set for a bright or dark future. A 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 outlook. So, you might want to check whether Bhagyanagar Properties is trading at a high P / E or a low P / E, relative to its industry.
Do Bhagyanagar Properties Effectively Use Its Benefits?
Bhagyanagar Properties does not currently pay any dividends, which essentially means that it has reinvested all of its profits back into the business. It certainly contributes to the decent profit growth figure we discussed above.
All in all, it seems that Bhagyanagar Properties has some positive aspects for its business. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. While we don’t completely reject the business, what we would do is try to determine how risky the business is to make a more informed decision about the business. Our risk dashboard would contain the 3 risks we have identified for Bhagyanagar properties.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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