Yahoo Finance Are Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?
With its stock down 11% over the past three months, it is easy to disregard Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
How Do You Calculate Return On Equity?
The formula for ROE is:
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:
1.6% = AR$1.8b ÷ AR$116b (Based on the trailing twelve months to December 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.02 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 1.6% ROE
It is quite clear that Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE is rather low. Even when compared to the industry average of 13%, the ROE figure is pretty disappointing. Although, we can see that Loma Negra Compañía Industrial Argentina Sociedad Anónima saw a modest net income growth of 12% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 15% in the same period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is LOMA fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Efficiently Re-investing Its Profits?
With a three-year median payout ratio of 48% (implying that the company retains 52% of its profits), it seems that Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
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. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 70% over the next three years. Still, forecasts suggest that Loma Negra Compañía Industrial Argentina Sociedad Anónima's future ROE will rise to 15% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.
Summary
On the whole, we do feel that Loma Negra Compañía Industrial Argentina Sociedad Anónima has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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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