Arlandastad Group AB (publ) (STO:AGROUP) financials are too murky to relate to current stock price dynamics: What does the stock hold?

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Most readers will already know that Arlandastad Group (STO:AGROUP) stock is up a significant 17% over the past week. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In this article, we have decided to focus on the ROE of Arlandastad Group.

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 simpler terms, it measures a company’s profitability relative to equity.

Check out our latest analysis for Arlandastad Group

How do you calculate return on equity?

the ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for the Arlandastad Group is:

4.2% = 176 million kr ÷ 4.2 billion kr (based on the last twelve months until December 2021).

“Yield” refers to a company’s earnings over the past year. This means that for every SEK 1 worth of equity, the company has generated SEK 0.04 of profit.

Why is ROE important for earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

Arlandastad Group profit growth and ROE of 4.2%

At first glance, the Arlandastad Group’s ROE does not look very promising. A quick closer look shows that the company’s ROE also doesn’t compare favorably to the industry average of 19%. Therefore, it might not be wrong to say that the 16% decline in net income over five years that the Arlandastad Group saw was likely the result of lower ROE. We believe there could be other factors at play here as well. Such as – low income retention or poor capital allocation.

However, when we compared the growth of the Arlandastad Group with the industry, we found that although company profits declined, the industry experienced 24% profit growth over the same period. . It’s quite worrying.

OM:AGROUP Growth in past results May 1, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. 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. Thus, you might want to check whether Arlandastad Group is trading on a high P/E or a low P/E, relative to its industry.

Does the Arlandastad Group use its retained earnings effectively?

The Arlandastad Group does not pay any dividends, which means that potentially all of its profits are reinvested in the company, which does not explain why the company’s profits have decreased if it retains all of its profits. So there could be other explanations for this. For example, the company’s business may deteriorate.

Conclusion

Overall, we believe that the performance displayed by Arlandastad Group is open to many interpretations. Although the company has a high reinvestment rate, the low ROE means that all this reinvestment does not benefit its investors and, moreover, it has a negative impact on earnings growth. In conclusion, we would proceed with caution with this business and one way to do that would be to review the risk profile of the business. You can see the 3 risks we have identified for the Arlandastad Group by visiting our risk dashboard for free on our platform here.

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.

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