Yahoo Finance Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?
Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) has had a great run on the share market with its stock up by a significant 16% over the last 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. Specifically, we decided to study Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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 To 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:
8.1% = AR$40b ÷ AR$496b (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.08 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 8.1% ROE
On the face of it, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE is not much to talk about. Next, when compared to the average industry ROE of 15%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Loma Negra Compañía Industrial Argentina Sociedad Anónima was able to grow its net income considerably, at a rate of 26% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that Loma Negra Compañía Industrial Argentina Sociedad Anónima's growth is quite high when compared to the industry average growth of 21% in the same period, which is great to see.
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. 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima is trading on a high P/E or a low P/E, relative to its industry.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Efficiently Re-investing Its Profits?
Loma Negra Compañía Industrial Argentina Sociedad Anónima's ' three-year median payout ratio is on the lower side at 19% implying that it is retaining a higher percentage (81%) of its profits. So it looks like Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Additionally, Loma Negra Compañía Industrial Argentina Sociedad Anónima has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 15%. However, Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE is predicted to rise to 18% despite there being no anticipated change in its payout ratio.
Summary
On the whole, we do feel that Loma Negra Compañía Industrial Argentina Sociedad Anónima has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.
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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.
