Voxel SA (WSE:VOX) stock has shown weakness lately, but finances look solid: should potential shareholders take the plunge?
It’s hard to get excited after watching Voxel’s (WSE:VOX) recent performance, as its stock is down 21% in the past three months. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. In this article, we decided to focus on Voxel ROE.
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 other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
See our latest analysis for Voxel
How is 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 Voxel is:
33% = 67 million zł ÷ 207 million zł (based on the last twelve months until September 2021).
“Yield” refers to a company’s earnings over the past year. One way to conceptualize this is that for every PLN1 of share capital it has, the company has made a profit of 0.33 PLN.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. 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.
Voxel earnings growth and ROE of 33%
For starters, Voxel has a pretty high ROE, which is interesting. Additionally, the company’s ROE is above the industry average of 11%, which is quite remarkable. As a result, Voxel’s outstanding 31% net profit growth over the past five years comes as no surprise.
Then, comparing with the industry net income growth, we found that Voxel’s growth is quite high compared to the average industry growth of 20% over the same period, which is great to have.
Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. 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 Voxel is trading on a high P/E or on a low P/E, relative to its industry.
Does Voxel effectively reinvest its profits?
Voxel’s three-year median payout rate is 44%, which is moderately low. The company retains the remaining 56%. This suggests that its dividend is well covered, and given the strong growth we discussed above, it appears that Voxel is reinvesting its earnings effectively.
Additionally, Voxel has paid dividends over a six-year period, which means the company is pretty serious about sharing its profits with its shareholders.
Overall, we’re pretty happy with Voxel’s performance. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in 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. Let’s not forget that business risk is also one of the factors that influence the stock price. This is therefore also an important area for investors to pay attention to before making a decision on a company. You can see the 3 risks we have identified for Voxel 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.