Does the impressive performance of Ajmera Realty & Infra India Limited (NSE:AJMERA) shares have something to do with its fundamentals?
Most readers will already know that shares of Ajmera Realty & Infra India (NSE:AJMERA) are up a significant 17% over the past three months. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. Specifically, we have decided to study the ROE of Ajmera Realty & Infra India in this article.
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.
Check out our latest analysis for Ajmera Realty & Infra India
How is ROE calculated?
the return on equity formula East:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Ajmera Realty & Infra India is:
5.9% = ₹446 million ÷ ₹7.6 billion (based on the last twelve months to December 2021).
“Yield” is the income the business has earned over the past year. Thus, this means that for every ₹1 of its shareholder’s investment, the company generates a profit of ₹0.06.
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 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. 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.
A side-by-side comparison of Ajmera Realty & Infra India’s earnings growth and ROE of 5.9%
It is clear that the ROE of Ajmera Realty & Infra India is rather low. However, compared to the industry average of 4.1%, we think the company certainly has more to offer. But again, seeing that Ajmera Realty & Infra India’s five-year net income has declined by 18% in the last five years makes us think again. Keep in mind that the company has a low ROE. It’s just that the industry’s ROE is lower. Therefore, this partly explains the drop in income.
That being said, we benchmarked the performance of Ajmera Realty & Infra India with the industry and became concerned when we found that while the company had reduced its profits, the industry had increased its profits at a rate of 6.0% over the same period.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. Is Ajmera Realty & Infra India correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Ajmera Realty & Infra India use its profits efficiently?
When we reconstruct Ajmera Realty & Infra India’s low three-year median payout ratio of 16% (where it retains 84% of its profits), calculated for the last three-year period, we are puzzled by the lack of growth . The low payout should mean that the company keeps most of its profits and therefore should see some growth. It seems that there could be other reasons for the lack in this regard. For example, the business might be in decline.
Additionally, Ajmera Realty & Infra India has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of growth. of the company.
Overall, we believe Ajmera Realty & Infra India has positive attributes. However, although the company has a decent ROE and high earnings retention, its earnings growth figure is quite disappointing. This suggests that there could be an external threat to the business, which is hampering growth. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. You can see the 4 risks we have identified for Ajmera Realty & Infra India by visiting our risk dashboard for free on our platform here.
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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.