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MARKETS LIVE BLOG:

STOCKS RISE AT OPEN AS TECHS REVIVE, WITH NETFLIX EARNINGS ON TAP

U.S. bond yields continue to slip away from recent five-month highs, easing pressure on stocks

Are Robust Financials Driving The Recent Rally In BluMetric Environmental Inc.'s (CVE:BLM) Stock?

Simply Wall St
·3 min read

Most readers would already be aware that BluMetric Environmental's (CVE:BLM) stock increased significantly by 14% over the past three months. 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. Particularly, we will be paying attention to BluMetric Environmental's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for BluMetric Environmental

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for BluMetric Environmental is:

46% = CA$3.6m ÷ CA$7.9m (Based on the trailing twelve months to March 2021).

The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.46.

What Has ROE Got To Do With 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. 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.

BluMetric Environmental's Earnings Growth And 46% ROE

First thing first, we like that BluMetric Environmental has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 9.2% also doesn't go unnoticed by us. This likely paved the way for the modest 7.0% net income growth seen by BluMetric Environmental over the past five years. growth

Next, on comparing with the industry net income growth, we found that BluMetric Environmental's reported growth was lower than the industry growth of 20% in the same period, which is not something we like to see.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. 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. 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 BluMetric Environmental is trading on a high P/E or a low P/E, relative to its industry.

Is BluMetric Environmental Using Its Retained Earnings Effectively?

Summary

In total, we are pretty happy with BluMetric Environmental's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. Our risks dashboard will have the 1 risk we have identified for BluMetric Environmental.

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 (at) simplywallst.com.