U.S. Markets closed
  • S&P 500

    3,900.11
    -11.63 (-0.30%)
     
  • Dow 30

    31,438.26
    -62.42 (-0.20%)
     
  • Nasdaq

    11,524.55
    -83.07 (-0.72%)
     
  • Russell 2000

    1,771.74
    +6.01 (+0.34%)
     
  • Crude Oil

    110.11
    +0.54 (+0.49%)
     
  • Gold

    1,824.00
    -0.80 (-0.04%)
     
  • Silver

    21.17
    +0.00 (+0.01%)
     
  • EUR/USD

    1.0586
    +0.0028 (+0.2647%)
     
  • 10-Yr Bond

    3.1940
    +0.0690 (+2.21%)
     
  • Vix

    26.95
    -0.28 (-1.03%)
     
  • GBP/USD

    1.2266
    -0.0003 (-0.0270%)
     
  • USD/JPY

    135.3900
    +0.2200 (+0.1628%)
     
  • BTC-USD

    20,816.17
    -516.59 (-2.42%)
     
  • CMC Crypto 200

    455.80
    -6.00 (-1.30%)
     
  • FTSE 100

    7,258.32
    +49.51 (+0.69%)
     
  • Nikkei 225

    26,871.27
    +379.30 (+1.43%)
     

C&C Group plc's (LON:CCR) Has Performed Well But Fundamentals Look Varied: Is There A Clear Direction For The Stock?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Most readers would already know that C&C Group's (LON:CCR) stock increased by 7.1% over the past three months. However, we decided to study the company's mixed-bag of fundamentals to assess what this could mean for future share prices, as stock prices tend to be aligned with a company's long-term financial performance. In this article, we decided to focus on C&C Group's ROE.

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 C&C Group

How Do You Calculate Return On Equity?

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 C&C Group is:

5.3% = €37m ÷ €699m (Based on the trailing twelve months to February 2022).

The 'return' is the income the business earned over the last year. That means that for every £1 worth of shareholders' equity, the company generated £0.05 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

C&C Group's Earnings Growth And 5.3% ROE

At first glance, C&C Group's ROE doesn't look very promising. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 14% either. Therefore, it might not be wrong to say that the five year net income decline of 16% seen by C&C Group was probably the result of it having a lower ROE. However, there could also be other factors causing the earnings to decline. Such as - low earnings retention or poor allocation of capital.

As a next step, we compared C&C Group's performance with the industry and found thatC&C Group's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 0.1% in the same period, which is a slower than the company.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is CCR fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is C&C Group Using Its Retained Earnings Effectively?

While the company did payout a portion of its dividend in the past, it currently doesn't pay a dividend. This implies that potentially all of its profits are being reinvested in the business.

Conclusion

In total, we're a bit ambivalent about C&C Group's performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.