Fintech
Is Fintech SA (WSE:FTH) stock’s recent performance driven by its attractive financial outlook?
Most readers will already know that Fintech (WSE:FTH) shares have increased significantly by 19% over the past week. Given the company’s impressive performance, we decided to study its financial indicators more closely, as a company’s financial health in the long term usually determines market results. In particular, we decided to study Fintech ROE in this article.
Return on equity or ROE is an important factor for a shareholder to consider because it tells him how effectively his capital is being reinvested. In simple terms, it is used to evaluate the profitability of a company in relation to its shareholder capital.
View our latest analysis for Fintech
How is ROE calculated?
THE formula for return on equity AND:
Return on Equity = Net Profit (from Continuing Operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Fintech is:
53% = zł5.7 million ÷ zł11 million (based on the last twelve months to March 2024).
The “return” is the profit of the last twelve months. So, this means that for every PLN1 of its shareholder’s investments, the company generates a profit of PLN0.53.
What does ROE have to do with earnings growth?
So far, we have learned that ROE is a measure of a company’s profitability. Depending on how much of these profits the company reinvests or “retains” and how effectively it does so, we can then assess a company’s earnings growth potential. Assuming all else remains the same, the higher the ROE and the higher the retention of earnings, the higher the growth rate of a company compared to companies that do not necessarily exhibit these characteristics.
A Side-by-Side Comparison of Fintech Earnings Growth and 53% ROE
First, let’s recognize that Fintech has a significantly high ROE. Moreover, the company’s ROE is higher than the industry average of 20%, which is quite impressive. As a result, Fintech’s impressive 71% net income growth over the past five years is not a surprise.
We then compared Fintech’s net profit growth with the industry and are pleased to see that the company’s growth figure is higher than the industry, which has seen a growth rate of 21% over the same 5-year period.
WSE:FTH Past Earnings Growth July 30, 2024
The basis for assigning value to a company is, to a large extent, tied to its earnings growth. It is important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps him determine whether the stock is headed for a bright or gloomy future. A good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to Check if the financial technology is trading at a high or low P/Ein relation to its sector.
Is FinTech Making Effective Use of Retained Earnings?
Fintech does not pay regular dividends to its shareholders, which means that the company has reinvested all its profits back into the business. This is probably what is driving the high earnings growth mentioned above.
Summary
Overall, we think Fintech has performed quite well. In particular, we like that the company is reinvesting heavily in its business and at a high rate of return. Unsurprisingly, this has led to impressive earnings growth. If the company continues to grow its earnings as it has, this could have a positive impact on its share price, given how earnings per share affect share prices in the long term. Not to forget, share price results also depend on the potential risks a company may face. So it is important for investors to be aware of the risks inherent in the business. You can see the 3 risks we have identified for Fintech by visiting our risk dashboard free on our platform here.
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This article by Simply Wall St is of a general nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended to constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
Do you have any comments about this article? Are you concerned about the content? Get in touch directly with us. Alternatively, send an email editorial-team@simplywallst.com