Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock is up by a considerable 13% over the past week. 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. In this article, we decided to focus on Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
How Is ROE Calculated?
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 Loma Negra Compañía Industrial Argentina Sociedad Anónima is:
16% = AR$33b ÷ AR$205b (Based on the trailing twelve months to September 2023).
The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit.
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. 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.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 16% ROE
To start with, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 14%. This certainly adds some context to Loma Negra Compañía Industrial Argentina Sociedad Anónima's moderate 20% net income growth seen over the past five years.
As a next step, we compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 20% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is LOMA fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Efficiently Re-investing Its Profits?
Loma Negra Compañía Industrial Argentina Sociedad Anónima has a healthy combination of a moderate three-year median payout ratio of 41% (or a retention ratio of 59%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Moreover, Loma Negra Compañía Industrial Argentina Sociedad Anónima is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 13% over the next three years. Regardless, the ROE is not expected to change much for the company despite the lower expected payout ratio.
Summary
On the whole, we feel that Loma Negra Compañía Industrial Argentina Sociedad Anónima's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to 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.
