Does TCECUR Sweden AB (publ)’s (NGM:TCC A) impressive stock performance have anything to do with its fundamentals?
Most readers would already be aware that TCECUR Sweden’s (NGM:TCC A) stock rose significantly by 14% in the past month. We wonder if and what role the company’s finances play in that price change, since a company’s long-term fundamentals usually dictate market performance. In this article, we decided to focus on TCECUR Sweden’s ROE.
Return on Equity or ROE is a test of how efficiently a company increases its value and manages investors’ money. Simply put, it is used to assess a company’s profitability in relation to its equity capital.
See our latest analysis for TCECUR Sweden
How to calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net profit (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for TCECUR Sweden is:
3.4% = SEK 6.8 million ÷ SEK 201 million (Based on the last twelve months to December 2021).
The “return” is the amount earned after tax in the last twelve months. One way to conceptualize this is that the company made SEK 0.03 in profit for every SEK 1 of shareholders’ capital it has.
What is the relationship between yield and earnings growth?
We have already established that ROE serves as an effective profit-generating gauge of a company’s future performance. Depending on how much of these profits the company reinvests or “retains”, and how efficiently it does so, we can then assess a company’s earnings growth potential. Assuming all else remains constant, the higher the ROI and earnings retention, the higher the growth rate of a company compared to companies that do not necessarily carry these characteristics.
TCECUR Sweden’s profit growth and 3.4% ROE
At first glance, TCECUR Sweden’s ROE does not look very promising. A quick further study shows that the company’s ROE also does not compare to the industry average of 18%. Despite this, TCECUR Sweden has surprisingly seen exceptional net income growth of 35% over the past five years. Therefore, there may be other reasons behind this growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low dividend payout ratio.
As a next step, we compared TCECUR Sweden’s net income growth to the industry and found that the company has a similar growth figure compared to the average industry growth rate of 35% over the same period.
Earnings growth is a huge factor in stock valuation. It is important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine whether the stock is positioned for a bright or bleak future. If you’re wondering about TCECUR Sweden’s valuation, check out this gauge of its price-to-earnings ratio, compared to its industry.
Does TCECUR Sweden effectively reinvest its profits?
TCECUR Sweden currently pays no dividends, which essentially means that it has reinvested all its profits in the business. This definitely contributes to the high profit growth we discussed above.
Summary
Overall, it looks like TCECUR Sweden has some positive aspects of its operations. With a high rate of reinvestment, albeit with a low ROE, the company has managed to see significant growth in its bottom line. While we won’t completely fire the company, what we would do is try to determine how risky the business is to make a more informed decision about the company. Our risk panel would have the 3 risks we have identified for TCECUR Sweden.
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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 by 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 shares and does not take into account your goals or your financial situation. We strive to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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