Does the impressive stock performance of Teliani Valley Polska SA (WSE:TLV) have something to do with its fundamentals?
Teliani Valley Polska (WSE:TLV) stock is up 42% in the past month. We wonder if and what role company finances play in this price change, as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on the ROE of Teliani Valley Polska.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simple terms, it is used to assess the profitability of a company in relation to its equity.
See our latest analysis for Teliani Valley Polska
How to calculate return on equity?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Teliani Valley Polska is:
12% = 504,000 zł ÷ 4.0 million zł (based on the last twelve months until September 2021).
The “return” is the annual profit. This therefore means that for each PLN1 of its shareholder’s investments, the company generates a profit of 0.12 PLN.
Why is ROE important for 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. 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 Teliani Valley Polska’s earnings growth and 12% ROE
At first glance, Teliani Valley Polska seems to have a decent ROE. Even when compared to the industry average of 15%, the company’s ROE looks pretty decent. Given the circumstances, one can’t help but wonder why Teliani Valley Polska has seen little to no growth over the past five years. We believe there could be other factors at play here that limit the growth of the business. These include poor revenue retention or poor capital allocation.
Then, comparing with industry net income growth, we found that Teliani Valley Polska’s reported growth was lower than industry growth by 13% over the same period, which we don’t don’t like to see.
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. 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. Thus, you might want to check if Teliani Valley Polska is trading on a high P/E or a low P/E, relative to its industry.
Does Teliani Valley Polska effectively reinvest its profits?
Teliani Valley Polska has a low three-year median payout ratio of 24% (or a retention rate of 76%), but the negligible number of earnings growth does not reflect this, as strong growth typically follows strong earnings retention. profits.
Additionally, Teliani Valley Polska has paid dividends over a six-year period, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of business growth.
All in all, it seems that Teliani Valley Polska has some positive aspects of its business. Still, the weak earnings growth is a bit of a concern, especially since the company has a high rate of return and reinvests a huge portion of its earnings. At first glance, there could be other factors, which do not necessarily control the business, that are preventing growth. So far, we’ve only scratched the surface of the company’s past performance by looking at the company’s fundamentals. You can do your own research on Teliani Valley Polska and see how it has performed in the past by watching this FREE detailed graph past profits, revenue and cash flow.
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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.