Gomero Group (NGM:GOMERO) stock is up 10% over the past week. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In particular, we will pay attention to the ROE of the Gomero Group today.
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 reveals the company’s success in turning shareholders’ investments into profits.
Discover our latest analysis for Gomero Group
How do you calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Gomero Group is:
9.4% = 2.0 million kr ÷ 21 million kr (based on the last twelve months to March 2022).
The “yield” is the amount earned after tax over the last twelve months. Another way to think about this is that for every 1 SEK worth of equity, the company was able to make a profit of 0.09 SEK.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to assess a company’s earnings 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.
A side-by-side comparison of the Gomero Group’s earnings growth and ROE of 9.4%
For starters, Gomero Group’s ROE looks acceptable. And comparing with the industry, we found that the industry average ROE is similar at 11%. Therefore, this likely laid the foundation for the decent 12% growth seen over the past five years by the Gomero Group.
We then performed a comparison between the Gomero Group’s net income growth and that of the industry, which revealed that the company’s growth is similar to the average industry growth of 12% over the same period.
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is the Gomero group correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does the Gomero Group effectively reinvest its profits?
The Gomero Group does not pay any dividends, which means that all its profits are reinvested in the company, which explains the good growth of the profits of the company.
Overall, we believe Gomero Group’s performance has been quite good. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. If the company continues to increase 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. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. Our risk dashboard would have the 3 risks we identified for Gomero Group.
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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.