Azrieli Group Ltd (TLV: AZRG) stock is picking up but financial data looks ambiguous: will momentum continue?
Most readers already know that Azrieli Group (TLV: AZRG) stock has increased significantly by 12% in the past three months. However, we have decided to pay attention to the fundamentals of the company which do not seem to give a clear sign on the financial health of the company. More specifically, we have decided to study the ROE of the Azrieli Group in this article.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for the Azrieli group
How do you calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of the Azrieli Group is:
1.2% = âª 208m Ã· âª 18b (Based on the last twelve months up to March 2021).
The “return” is the annual profit. This therefore means that for every 1 of its shareholder’s investments, the company generates a profit of 0.01.
Why is ROE important for profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates 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. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Profit growth for the Azrieli group and 1.2% ROE
It is quite clear that the ROE of the Azrieli Group is rather low. Not only that, even compared to the industry average of 8.8%, the company’s ROE is quite unremarkable. Given the circumstances, the significant drop in net income of 14% observed by the Azrieli Group over the past five years is not surprising. However, other factors can also lead to lower income. Such as – low profit retention or misallocation of capital.
So, in a next step, we compared the performance of the Azrieli group to that of the industry and were disappointed to find that if the company reduced its profits, the industry increased its profits at a rate of 9.2. % during the same period.
Profit growth is a huge factor in the valuation of stocks. 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 him determine whether the stock is set for a bright or dark future. Is the Azrieli Group fair valued compared to other companies? These 3 evaluation measures could help you decide.
Is The Azrieli Group Efficiently Using Its Retained Earnings?
Despite a normal three-year median payout rate of 41% (i.e. a retention rate of 59%), the fact that Azrieli Group profits have declined is quite puzzling. It seems that there could be other reasons for the lack in this regard. For example, the business could be in decline.
Additionally, Azrieli Group has paid dividends over a period of at least ten years, which means that the management of the company is committed to paying dividends even if it means little or no growth in earnings. After studying the latest consensus data from analysts, we found that the company is expected to continue to pay out around 48% of its profits over the next three years. However, Azrieli Group’s ROE is expected to increase to 5.3% despite no expected change in its payout ratio.
Overall, we are a little ambivalent about the performance of the Azrieli Group. Although the company has a high reinvestment rate, the low ROE means that all that reinvestment is not benefiting its investors and, moreover, it has a negative impact on profit growth. However, the latest forecast from industry analysts shows that analysts expect a significant improvement in the company’s earnings growth rate. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
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