Is the recent performance of Steelcast Limited (NSE:STEELCAS) stock driven by its attractive financial outlook?

Steelcast (NSE:STEELCAS) has had a strong run in the stock market with a significant 13% rise in its stock over the past week. 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 outcomes. In this article, we decided to focus on the ROE of Steelcast.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

See our latest review for Steelcast

How do you calculate return on equity?

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 Steelcast is:

17% = ₹ 233m ÷ ₹ 1.4b (Based on trailing twelve months to September 2021).

The “return” is the annual profit. Thus, this means that for every ₹1 of its shareholder’s investment, the company generates a profit of ₹0.17.

Why is ROE important for earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s 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.

Steelcast earnings growth and ROE of 17%

At first glance, Steelcast seems to have a decent ROE. Even when compared to the industry average of 15%, the company’s ROE looks pretty decent. This likely partly explains Steelcast’s moderate 9.8% growth over the past five years, among other factors.

Then, when comparing with industry net income growth, we found that Steelcast’s reported growth was lower than industry growth by 15% over the same period, which we don’t like. see.

NSEI: STEELCAS Past Earnings Growth January 18, 2022

Earnings growth is an important metric to consider when evaluating a stock. 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 Steelcast correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Steelcast effectively reinvest its profits?

In Steelcast’s case, its respectable earnings growth is likely due to its low three-year median payout rate of 16% (or an 84% retention rate), suggesting that the company is investing most of its its profits to develop its activity.

Also, Steelcast has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

Overall, we feel Steelcast’s performance has been pretty good. In particular, it is good to see that the company is investing heavily in its business and, along with a high rate of return, this has led to respectable growth in its profits. If the company continues to increase its earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. You can see the 3 risks we have identified for Steelcast by visiting our risk dashboard for free on our platform here.

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.

Comments are closed.