Will the weakness in shares of United Company RUSAL, International Public Joint-Stock Company (HKG: 486) prove temporary given strong fundamentals?
With its stock down 8.5% in the past month, it’s easy to overlook United Company RUSAL International (HKG: 486). However, a closer look at his strong finances might get you to think again. Since fundamentals usually determine long-term market outcomes, the business is worth considering. Specifically, we decided to study the ROE of United Company RUSAL International in this article.
Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how efficiently their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
Check out our latest review for United Company RUSAL International
How to calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of United Company RUSAL International is:
31% = US $ 2.9 billion Ã· US $ 9.3 billion (based on the last twelve months to June 2021).
“Return” refers to a company’s profits over the past year. This means that for every HK $ 1 worth of equity, the company generated HK $ 0.31 in profit.
What is the relationship between ROE and profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future 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. Assuming everything else 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.
A side-by-side comparison of profit growth and 31% ROE of United Company RUSAL International
First of all, we love that United Company RUSAL International has an impressive ROE. Second, a comparison to the industry-reported average ROE of 13% doesn’t go unnoticed for us either. It is probably because of this that United Company RUSAL International has been able to achieve a decent 8.5% net income growth over the past five years.
Then, comparing with the growth in net income of the industry, we found that the reported growth of United Company RUSAL International was lower than the industry growth of 23% during the same period, which did not is not something we like to see.
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This will help them determine whether the future of the stock looks bright or threatening. 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 whether United Company RUSAL International is trading high P / E or low P / E, relative to its industry.
Is United Company RUSAL International Efficiently Using Retained Earnings?
United Company RUSAL International does not currently pay any dividends, which essentially means that it has reinvested all of its profits back into the business. It certainly contributes to the decent profit growth figure we discussed above.
Overall, we think the performance of United Company RUSAL International has been quite good. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. As a result, its decent profit growth is not surprising. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
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 any stock 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 any of the stocks mentioned.