Pollard Banknote Limited (TSE: PBL) stock is on an uptrend: is strong financial data driving the market?
Pollard Banknote (TSE: PBL) has had a strong run in the equity market with its stock rising significantly 5.6% over the past week. Since the market typically pays for a company’s long-term fundamentals, we decided to study the company’s KPIs to see if they could influence the market. In particular, we will be paying close attention to the ROE of Pollard Banknote today.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for Pollard Banknote
How is the ROE calculated?
The formula for ROE is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE for Pollard Banknote is:
20% = 40 million Canadian dollars Ã· 201 million Canadian dollars (based on the last twelve months up to June 2021).
“Return” refers to a company’s profits over the past year. This means that for every C $ 1 of having shareholders, the company generated C $ 0.20 in profit.
Why is ROE important for profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ââthe growth potential of the company. Assuming everything is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics. .
Pollard Banknote profit growth and 20% ROE
For starters, Pollard Banknote’s ROE seems acceptable. Compared to the industry average ROE of 12%, the company’s ROE looks quite remarkable. This likely laid the groundwork for Pollard Banknote’s significant 24% net income growth seen over the past five years. However, there could also be other causes behind this growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.
Given that the industry has cut its profits at a rate of 1.9% over the same period, the growth in the company’s net income is quite impressive.
Profit growth is an important metric to consider when valuing 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. In doing so, he’ll have an idea if the action is heading for clear blue waters or swampy waters ahead. Is Pollard Banknote properly rated against other companies? These 3 evaluation measures could help you decide.
Is Pollard Banknote Efficiently Reinvesting Its Profits?
Pollard Banknote has a very low three-year median payout rate of 18%, which means he has the remaining 82% to reinvest in his business. This suggests that management is reinvesting most of the profits to grow the business, as evidenced by the growth seen by the business.
In addition, Pollard Banknote is committed to continuing to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years.
Overall, we are quite satisfied with the performance of Pollard Banknote. Specifically, we like the fact that the company reinvests a large portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.
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 material. Simply Wall St has no position in any of the stocks mentioned.
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