Most readers already know that Grupo México. De’s (BMV: GMEXICOB) stock has risen 7.7% in the past three months. Given its impressive performance, we decided to study the company’s key financial metrics, as a company’s long-term fundamentals usually dictate market results. More specifically, we decided to study Grupo México. of ROE in this article.
Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how effectively their capital is being reinvested. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest analysis for Grupo México. of
How to calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Grupo México. from is:
27% = 4.8 billion US dollars ÷ 18 billion US dollars (based on the last twelve months to September 2021).
The “return” is the income the business has earned over the past year. One way to conceptualize this is that for every MX $ of shareholder capital it has, the company made 0.27 MX $ in profit.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. 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 else 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.
A side-by-side comparison of Grupo México. Profit growth of and 27% of ROE
At first glance, Grupo México. de seems to have a decent ROE. And comparing with the industry, we found that the industry average ROE is similar at 26%. Therefore, this likely laid the groundwork for Grupo México’s impressive 26% net income growth over the past five years. of. We believe that there could also be other aspects that positively influence the company’s profit growth. 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 Grupo México. growth in net income from with the industry and we are happy to see that the company’s growth figure is higher compared to the industry which has a growth rate of 15% 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. In doing so, he’ll have an idea if the action is heading for clear blue waters or swampy waters ahead. Is GMEXICO B just valued? This intrinsic business value infographic has everything you need to know.
Is Grupo México. Effectively reinvest its profits?
The high three-year median payout rate of 80% (implying that it only keeps 20% of the profits) for Grupo México. de suggests that the growth of the company was not really hampered despite returning most of the profits to its shareholders.
In addition, Grupo México. de is committed to continuing to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years. Our latest analyst data shows the company’s future payout ratio over the next three years is expected to be around 66%. As a result, forecasts suggest that Grupo México. De’s future ROE will be 22%, which is again similar to the current ROE.
Overall, we are quite satisfied with Grupo México. the performance of de. In particular, its high ROE is quite remarkable and also the probable explanation for the considerable growth in its profits. Yet the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. However, according to the latest forecast from industry analysts, the company’s profits are expected to decline in the future. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.
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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 any stock 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.