U.S. Markets open in 3 hrs 13 mins
  • S&P Futures

    3,445.00
    +22.25 (+0.65%)
     
  • Dow Futures

    28,251.00
    +151.00 (+0.54%)
     
  • Nasdaq Futures

    11,728.00
    +77.75 (+0.67%)
     
  • Russell 2000 Futures

    1,624.30
    +13.00 (+0.81%)
     
  • Crude Oil

    40.81
    -0.02 (-0.05%)
     
  • Gold

    1,909.60
    -2.10 (-0.11%)
     
  • Silver

    24.75
    +0.05 (+0.21%)
     
  • EUR/USD

    1.1819
    +0.0046 (+0.3900%)
     
  • 10-Yr Bond

    0.7610
    0.0000 (0.00%)
     
  • Vix

    28.47
    +1.06 (+3.87%)
     
  • GBP/USD

    1.2960
    +0.0019 (+0.1464%)
     
  • USD/JPY

    105.5670
    +0.1370 (+0.1299%)
     
  • BTC-USD

    11,790.64
    +733.63 (+6.63%)
     
  • CMC Crypto 200

    239.13
    +5.46 (+2.34%)
     
  • FTSE 100

    5,896.48
    +11.83 (+0.20%)
     
  • Nikkei 225

    23,567.04
    -104.09 (-0.44%)
     

Do Fundamentals Have Any Role To Play In Driving Vitreous Glass Inc.'s (CVE:VCI) Stock Up Recently?

Simply Wall St
·4 mins read

Vitreous Glass' (CVE:VCI) stock up by 3.4% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Vitreous Glass' 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Vitreous Glass

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 Vitreous Glass is:

44% = CA$1.9m ÷ CA$4.4m (Based on the trailing twelve months to June 2020).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each CA$1 of shareholders' capital it has, the company made CA$0.44 in profit.

What Has ROE Got To Do With 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.

A Side By Side comparison of Vitreous Glass' Earnings Growth And 44% ROE

Firstly, we acknowledge that Vitreous Glass has a significantly high ROE. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. However, we are curious as to how the high returns still resulted in a flat growth for Vitreous Glass in the past five years. So, there could be some other aspects that could potentially be preventing the company from growing. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

As a next step, we compared Vitreous Glass' net income growth with the industry and discovered that the industry saw an average growth of 12% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Vitreous Glass''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Vitreous Glass Using Its Retained Earnings Effectively?

Conclusion

In total, it does look like Vitreous Glass has some positive aspects to its business. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Vitreous Glass' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

This article by Simply Wall St is general in nature. 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.

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