Country Condo’s Limited (NSE: COUNCODOS) shares are on the rise, but financial data looks ambiguous: will momentum continue?
Country Condo (NSE: COUNCODOS) inventory has increased 20% over the past month. 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. Specifically, we have decided to study Country Condo’s ROE in this article.
Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In simpler terms, it measures a company’s profitability relative to equity.
See our latest review for Country Condo’s
How to calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE for Country Condo is:
2.5% = ₹ 4.8m ÷ ₹ 193m (based on the last twelve months up to December 2020).
The “return” is the income the business has earned over the past year. So this means that for every 1 of its shareholder’s investments, the company generates a profit of ₹ 0.02.
What does ROE have to do with 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.
Country Condo profit growth and 2.5% ROE
It is difficult to say that Country Condo’s ROE is very good on its own. Even compared to the industry average ROE of 3.4%, the company’s ROE is pretty dismal. Given the circumstances, the significant drop in net income of 16% observed by Country Condo’s over the past five years is not surprising. We believe there could also be other aspects that negatively influence the company’s earnings outlook. For example, the company has a very high payout ratio or faces competitive pressures.
So, in a next step, we compared Country Condo’s performance to that of the industry and were disappointed to find that although the company reduced its profits, the industry increased its profits at a rate of. 6.7% over the same period.
Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine whether the future of the stock looks bright or threatening. What is COUCODOS worth today? The intrinsic value infographic in our free research report helps to visualize whether COUNCODOS is currently poorly valued by the market.
Is Country Condo Efficiently Using Its Retained Earnings?
Overall, we believe that the performance shown by Country Condo’s may be open to several interpretations. 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. In conclusion, we would proceed with caution with this business and one way to do that would be to look at the risk profile of the business. To learn about the 3 risks we have identified for Country Condo, visit our free risk dashboard.
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