Yahoo Finance Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Stock Has Shown A Decent Performance: Have Financials A Role To Play?
Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock up by 8.4% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
How To Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Loma Negra Compañía Industrial Argentina Sociedad Anónima is:
10.0% = AR$9.8b ÷ AR$98b (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.10 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 10.0% ROE
To start with, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE looks acceptable. Even so, when compared with the average industry ROE of 13%, we aren't very excited. However, we are pleased to see the impressive 29% net income growth reported by Loma Negra Compañía Industrial Argentina Sociedad Anónima over the past five years. Therefore, there could be other causes behind this growth. Such as - high earnings retention or an efficient management in place. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this certainly also provides some context to the high earnings growth seen by the company.
As a next step, we compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 19%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Loma Negra Compañía Industrial Argentina Sociedad Anónima fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 65% (implying that it keeps only 35% of profits) for Loma Negra Compañía Industrial Argentina Sociedad Anónima suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Along with seeing a growth in earnings, Loma Negra Compañía Industrial Argentina Sociedad Anónima only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 31% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 13%, over the same period.
Summary
In total, it does look like Loma Negra Compañía Industrial Argentina Sociedad Anónima has some positive aspects to its business. Specifically, its respectable ROE which likely led to the considerable growth in earnings. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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