With its stock down 24% in the past three months, it’s easy to overlook the Clemondo Group (STO:CLEM). But if you pay close attention, you might find that its leading financial indicators look pretty decent, which could mean the stock could potentially rise in the long run as markets generally reward more resilient long-term fundamentals. In particular, today we will pay particular attention to the ROE of Clemondo Group.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Check out our latest analysis for Clemondo Group
How is ROE calculated?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Clemondo Group is:
8.0% = 7.6 million kr ÷ 95 million kr (based on the last twelve months to March 2022).
The “return” is the annual profit. This means that for every 1 SEK worth of equity, the company has generated 0.08 SEK of profit.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Clemondo Group earnings growth and ROE of 8.0%
At first glance, Clemondo Group’s ROE is not a topic of conversation. However, since the company’s ROE is similar to the industry average ROE of 8.1%, we can spare it some thought. Considering in particular the Clemondo Group’s outstanding five-year net profit growth of 58%, we are definitely impressed. Considering that ROE is not particularly high, we believe that there could also be other factors at play that could influence the growth of the business. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.
We then compared the Clemondo Group net profit growth with the industry and we are happy to see that the growth figure for the company is higher compared to the industry which has a growth rate of 9.3 % over the same period.
Earnings growth is an important metric to consider when evaluating 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 them determine whether the action is placed for a bright or bleak future. Is the Clemondo Group correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does the Clemondo Group use its profits efficiently?
Since Clemondo Group does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
All in all, it seems that Clemondo Group has positive aspects in its business. Even despite the low rate of return, the company has shown impressive earnings growth thanks to massive reinvestment in its business. That said, the company’s earnings growth is expected to slow, as expected in current analyst estimates. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.