Is the recent market performance of Centrum Nowoczesnych Technologii SA (WSE: CNT) linked to its strong fundamentals?
Centrum Nowoczesnych Technologii (WSE: CNT) shares have risen 26% 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 Centrum Nowoczesnych Technologii.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest review for Centrum Nowoczesnych Technologii
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Centrum Nowoczesnych Technologii is:
42% = zł52m zł122m (Based on the last twelve months up to June 2021).
The “return” is the annual profit. One way to conceptualize this is that for every PLN1 of share capital it has, the company has made a profit of PLN 0.42.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Centrum Nowoczesnych Technologii profit growth and 42% ROE
For starters, Centrum Nowoczesnych Technologii has a pretty high ROE, which is interesting. Additionally, the company’s ROE is 13% higher than the industry average, which is quite remarkable. As a result, Centrum Nowoczesnych Technologii’s exceptional 36% net profit growth over the past five years is no surprise.
As a next step, we compared the net income growth of Centrum Nowoczesnych Technologii with the industry, and luckily, we found that the growth observed by the company is above the industry average growth of 21%.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. 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 outlook. So, you might want to check if Centrum Nowoczesnych Technologii is trading high P / E or low P / E, relative to its industry.
Is Centrum Nowoczesnych Technologii effectively using its profits?
Although the company has paid part of its dividend in the past, it currently does not pay any dividends. This is probably what explains the high number of profit growth discussed above.
Overall, we think Centrum Nowoczesnych Technologii’s performance has been quite good. 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 know the 1 risk that we have identified for Centrum Nowoczesnych Technologii, visit our risk dashboard for free.
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 the mentioned stocks.
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