Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) On An Uptrend: Could Fundamentals Be Driving The Stock?
Most readers would already know that Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock increased by 6.0% 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima'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.
View our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
How Do You Calculate Return On Equity?
The formula for ROE is:
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:
6.3% = AR$5.5b ÷ AR$87b (Based on the trailing twelve months to March 2022).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.06 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. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 6.3% ROE
On the face of it, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE is not much to talk about. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 12%. In spite of this, Loma Negra Compañía Industrial Argentina Sociedad Anónima was able to grow its net income considerably, at a rate of 32% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
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 17% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Loma Negra Compañía Industrial Argentina Sociedad Anónima's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Making Efficient Use Of Its Profits?
Loma Negra Compañía Industrial Argentina Sociedad Anónima has a significant three-year median payout ratio of 72%, meaning the company only retains 28% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.
While Loma Negra Compañía Industrial Argentina Sociedad Anónima 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. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 39% over the next three years. As a result, the expected drop in Loma Negra Compañía Industrial Argentina Sociedad Anónima's payout ratio explains the anticipated rise in the company's future ROE to 13%, over the same period.
Summary
On the whole, we do feel that Loma Negra Compañía Industrial Argentina Sociedad Anónima has some positive attributes. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. The latest industry analyst forecasts show that the company is expected to maintain its current 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.
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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.
