Has Corporación Interamericana de Entretenimiento, S.A.B. de C.V.’s (BMV:CIEB) Impressive Stock Performance Got Anything to Do With Its Fundamentals?
Most readers would already be aware that Corporación Interamericana de Entretenimiento. de’s (BMV:CIEB) stock increased significantly by 45% over the past three months. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Corporación Interamericana de Entretenimiento. de’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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Corporación Interamericana de Entretenimiento. de
How Is ROE Calculated?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Corporación Interamericana de Entretenimiento. de is:
23% = Mex$1.2b ÷ Mex$5.1b (Based on the trailing twelve months to September 2023).
The ‘return’ is the amount earned after tax over the last twelve months. That means that for every MX$1 worth of shareholders’ equity, the company generated MX$0.23 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively 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 higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.
Corporación Interamericana de Entretenimiento. de’s Earnings Growth And 23% ROE
To start with, Corporación Interamericana de Entretenimiento. de’s ROE looks acceptable. Especially when compared to the industry average of 16% the company’s ROE looks pretty impressive. This probably laid the ground for Corporación Interamericana de Entretenimiento. de’s significant 50% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Corporación Interamericana de Entretenimiento. de’s growth is quite high when compared to the industry average growth of 7.6% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. One 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 prospects. So, you may want to check if Corporación Interamericana de Entretenimiento. de is trading on a high P/E or a low P/E, relative to its industry.
Is Corporación Interamericana de Entretenimiento. de Efficiently Re-investing Its Profits?
Corporación Interamericana de Entretenimiento. de has very a high three-year median payout ratio of 239% suggesting that the company’s shareholders are getting paid from more than just the company’s earnings. However, this hasn’t hampered its ability to grow as we saw earlier. Having said that, the high payout ratio is definitely risky and something to keep an eye on. Our risks dashboard should have the 2 risks we have identified for Corporación Interamericana de Entretenimiento. de.
While Corporación Interamericana de Entretenimiento. de has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend.
Summary
On the whole, we do feel that Corporación Interamericana de Entretenimiento. de has some positive attributes. Namely, its high earnings growth, which was likely due to its high ROE. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining hardly any of its profits. So far, we’ve only made a quick discussion around the company’s earnings growth. You can do your own research on Corporación Interamericana de Entretenimiento. de and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.
Valuation is complex, but we’re helping make it simple.
Find out whether Corporación Interamericana de Entretenimiento. de is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
