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Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's(NYSE:LOMA) Recent Stock Performance Tethered To Its Strong Fundamentals?

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Most readers would already be aware that Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock increased significantly by 13% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

How Do You Calculate Return On Equity?

ROE 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima is:

15% = AR$7.8b ÷ AR$54b (Based on the trailing twelve months to March 2021).

The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.15.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 15% ROE

To start with, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 14%. This certainly adds some context to Loma Negra Compañía Industrial Argentina Sociedad Anónima's exceptional 32% net income growth seen over the past five years. However, there could also be other drivers behind this growth. Such as - high earnings retention or an efficient management in place.

We then compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 12% in the same period.

past-earnings-growth
past-earnings-growth

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Loma Negra Compañía Industrial Argentina Sociedad Anónima fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Efficiently Re-investing Its Profits?

Loma Negra Compañía Industrial Argentina Sociedad Anónima's significant three-year median payout ratio of 64% (where it is retaining only 36% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Along with seeing a growth in earnings, Loma Negra Compañía Industrial Argentina Sociedad Anónima only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 49% over the next three years. However, the company's ROE is not expected to change by much despite the lower expected payout ratio.

Conclusion

Overall, we are quite pleased with Loma Negra Compañía Industrial Argentina Sociedad Anónima's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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.

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