Multiplan Empreendimentos Imobiliários SA (BVMF:MULT3) is doing well but the fundamentals look mixed: is there a clear direction for the stock?

Multiplan Empreendimentos Imobiliários (BVMF:MULT3) stock is up 17% in the past three months. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In particular, today we will pay particular attention to the ROE of Multiplan Empreendimentos Imobiliários.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

See our latest review for Multiplan Empreendimentos Imobiliários

How is ROE calculated?

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 Multiplan Empreendimentos Imobiliários is:

7.1% = R$453m ÷ R$6.4b (Based on trailing twelve months to December 2021).

The “yield” is the amount earned after tax over the last twelve months. This means that for every R$ of equity, the company generated a profit of R$0.07.

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 those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

A side-by-side comparison of Multiplan Empreendimentos Imobiliários earnings growth and ROE of 7.1%

It is clear that the ROE of Multiplan Empreendimentos Imobiliários is rather weak. A comparison with the industry shows that the company’s ROE is quite similar to the average industry ROE of 7.8%. We are therefore delighted to see that the net income of Multiplan Empreendimentos Imobiliários has increased at an acceptable rate of 17% over the last five years. Given the low ROE, it is quite possible that other aspects positively influence the company’s earnings growth. Such as – high revenue retention or effective management in place.

As a next step, we benchmarked Multiplan Empreendimentos Imobiliários’ net income growth against the industry and were disappointed to see that the company’s growth is below the average industry growth of 29% over the past year. the same period.

BOVESPA: MULT3 Past Earnings Growth April 23, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. What is MULT3 worth today? The intrinsic value infographic in our free research report helps visualize whether MULT3 is currently being mispriced by the market.

Does Multiplan Empreendimentos Imobiliários make effective use of its profits?

The high three-year median payout rate of 56% (or a retention rate of 44%) for Multiplan Empreendimentos Imobiliários suggests that the company’s growth hasn’t really been hampered despite returning most of its income to its shareholders.

Moreover, Multiplan Empreendimentos Imobiliários has paid dividends over a period of at least ten years, which means that the company is quite serious about sharing its profits with shareholders. After reviewing the latest analyst consensus data, we found that the company’s future payout ratio is expected to drop to 40% over the next three years. The fact that the company’s ROE is expected to be 13% over the same period is explained by the drop in the payout ratio.

Summary

Overall, we believe that the performance shown by Multiplan Empreendimentos Imobiliários can be open to many interpretations. Although the company has shown fairly strong earnings growth, the rate of reinvestment is low. This means that the earnings growth figure could have been significantly higher had the company retained more of its earnings and reinvested it at a higher rate of return. That said, the latest analyst forecasts show that the company will continue to see earnings expansion. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

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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