D-Market Elektronik Hizmetler ve Ticaret A.S.'s (NASDAQ:HEPS) Stock Is Going Strong: Have Financials A Role To Play?
Most readers would already be aware that D-Market Elektronik Hizmetler ve Ticaret's (NASDAQ:HEPS) stock increased significantly by 36% 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. In this article, we decided to focus on D-Market Elektronik Hizmetler ve Ticaret's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
Check out our latest analysis for D-Market Elektronik Hizmetler ve Ticaret
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for D-Market Elektronik Hizmetler ve Ticaret is:
34% = ₺1.3b ÷ ₺3.7b (Based on the trailing twelve months to September 2023).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.34.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
D-Market Elektronik Hizmetler ve Ticaret's Earnings Growth And 34% ROE
Firstly, we acknowledge that D-Market Elektronik Hizmetler ve Ticaret has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 19% also doesn't go unnoticed by us. As you might expect, the 13% net income decline reported by D-Market Elektronik Hizmetler ve Ticaret doesn't bode well with us. So, there might be some other aspects that could explain this. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
So, as a next step, we compared D-Market Elektronik Hizmetler ve Ticaret's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 13% over the last few years.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about D-Market Elektronik Hizmetler ve Ticaret's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is D-Market Elektronik Hizmetler ve Ticaret Efficiently Re-investing Its Profits?
D-Market Elektronik Hizmetler ve Ticaret doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business, which doesn't explain why the company's earnings have shrunk if it is retaining all of its profits. So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.
Conclusion
Overall, we feel that D-Market Elektronik Hizmetler ve Ticaret certainly does have some positive factors to consider. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. In addition, on studying the latest analyst forecasts, we found that the company's earnings are expected to continue to shrink. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
