Is the recent performance of PDS Multinational Fashions Limited (NSE: PDSMFL) stocks linked to its strong fundamentals?


Most readers already know that the stock of PDS Multinational Fashions (NSE: PDSMFL) has increased significantly by 29% 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 results. In this article, we have decided to focus on the ROE of PDS Multinational Fashions.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

Check out our latest review for PDS Multinational Fashions

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 for PDS Multinational Fashions is:

34% = ₹ 2.5b ÷ ₹ 7.6b (based on the last twelve months up to September 2021).

The “return” is the amount earned after tax over the past twelve months. So this means that for every 1 of its shareholder’s investments, the company generates a profit of ₹ 0.34.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of those profits the company reinvests or “withholds” and its efficiency, we are then able to assess a company’s profit growth potential. 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.

Profit growth of PDS Multinational Fashions and 34% of ROE

First of all, we love that PDS Multinational Fashions has an impressive ROE. Second, even compared to the industry average of 10%, the company’s ROE is quite impressive. Under these circumstances, PDS Multinational Fashions’ net profit growth of 54% over five years was to be expected.

We then compared the net income growth of PDS Multinational Fashions with the industry and we are delighted to see that the growth number of the company is higher than that of the industry which has a growth rate of 5, 8% over the same period.

NSEI: PDSMFL Past Profit Growth on November 18, 2021

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 PDS Multinational Fashions valued at fair value compared to other companies? These 3 evaluation measures could help you decide.

Is PDS Multinational Fashions Using Profits Efficiently?

PDS Multinational Fashions has a three-year median payout rate of 49% (where it keeps 51% of its revenue), which is neither too low nor too high. This suggests that its dividend is well hedged, and given the strong growth we discussed above, it looks like PDS Multinational Fashions is reinvesting its earnings in an efficient manner.

Summary

Overall, we are quite satisfied with the performance of PDS Multinational Fashions. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. It should be remembered that the results of stock prices also depend on the potential risks a company may face. It is therefore important that investors are aware of the risks inherent in the business. To learn about the 3 risks we have identified for PDS Multinational Fashions, visit our free risk dashboard.

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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