Does Brightcom Group Limited’s (NSE:BCG) latest stock performance reflect its financial health?

Brightcom Group Inc (NSE:BCG) has had a strong run in the stock market, with its stock rising 155% in the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. Specifically, we decided to study Brightcom Group’s ROE in this article.

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 simple terms, it is used to assess the profitability of a company in relation to its equity.

Check out our latest analysis for Brightcom Group

How do you calculate return on equity?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for Brightcom Group is:

15% = ₹6.0 billion ÷ ₹39 billion (based on the last twelve months to September 2021).

“Yield” is the income the business has earned over the past year. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.15.

What does ROE have to do with earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

Brightcom Group Earnings Growth and ROE of 15%

For starters, Brightcom Group seems to have a respectable ROE. Additionally, the company’s ROE is similar to the industry average of 15%. Therefore, this likely laid the foundation for the decent 5.4% growth seen over the past five years by Brightcom Group.

As a next step, we benchmarked Brightcom Group’s net income growth against the industry and found that the company had a similar growth figure compared to the industry average growth rate of 5.4% over the same period. period.

NSEI: BCG Past Earnings Growth as of January 21, 2022

Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This then helps them determine if the stock is positioned for a bright or bleak future. Is Brightcom Group correctly rated against other companies? These 3 assessment metrics might help you decide.

Is the Brightcom Group effectively reinvesting its profits?

In Brightcom Group’s case, its respectable earnings growth is likely due to its low three-year median payout ratio of 0.5% (or a retention rate of 99%), suggesting that the company invests most of its profits to expand its business. .

Additionally, Brightcom Group paid dividends over a nine-year period. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we believe Brightcom Group’s performance has been quite good. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. Our risk dashboard would contain the 3 risks we have identified for Brightcom Group.

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.

About Ian Crawford

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