Advertisement
Canada markets open in 9 hours 10 minutes

  • S&P/TSX

    21,885.38
    +11.66 (+0.05%)
     

  • S&P 500

    5,048.42
    -23.21 (-0.46%)
     

  • DOW

    38,085.80
    -375.12 (-0.98%)
     

  • CAD/USD

    0.7324
    +0.0001 (+0.02%)
     

  • CRUDE OIL

    83.86
    +0.29 (+0.35%)
     

  • Bitcoin CAD

    87,728.08
    +112.28 (+0.13%)
     

  • CMC Crypto 200

    1,388.80
    +6.23 (+0.45%)
     

  • GOLD FUTURES

    2,347.00
    +4.50 (+0.19%)
     

  • RUSSELL 2000

    1,981.12
    -14.31 (-0.72%)
     

  • 10-Yr Bond

    4.7060
    +0.0540 (+1.16%)
     

  • NASDAQ futures

    17,767.00
    +199.50 (+1.14%)
     

  • VOLATILITY

    15.37
    -15.97 (-50.96%)
     

  • FTSE

    8,078.86
    +38.48 (+0.48%)
     

  • NIKKEI 225

    37,911.89
    +283.41 (+0.75%)
     

  • CAD/EUR

    0.6827
    +0.0006 (+0.09%)
     

Atico Mining Corporation's (CVE:ATY) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Simply Wall St
·4 min read

Atico Mining (CVE:ATY) has had a great run on the share market with its stock up by a significant 115% over the last three months. As most would know, fundamentals are what usually guide market price movements over the long-term, 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. In this article, we decided to focus on Atico Mining'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for Atico Mining

How Is ROE Calculated?

The formula for return on equity is:

ADVERTISEMENT

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Atico Mining is:

6.6% = US$4.3m ÷ US$65m (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.07 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

Atico Mining's Earnings Growth And 6.6% ROE

On the face of it, Atico Mining's ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 8.3% either. In spite of this, Atico Mining was able to grow its net income considerably, at a rate of 46% 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 Atico Mining'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 37% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Atico Mining is trading on a high P/E or a low P/E, relative to its industry.

Is Atico Mining Making Efficient Use Of Its Profits?

Atico Mining doesn't pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

Overall, we feel that Atico Mining certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. You can see the 3 risks we have identified for Atico Mining by visiting our risks dashboard for free on our platform here.

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.