Yahoo Finance Are Robust Financials Driving The Recent Rally In Alphamin Resources Corp.'s (CVE:AFM) Stock?
Alphamin Resources' (CVE:AFM) stock is up by a considerable 43% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Alphamin Resources' ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for Alphamin Resources
How Is ROE Calculated?
ROE 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 Alphamin Resources is:
16% = US$58m ÷ US$366m (Based on the trailing twelve months to December 2023).
The 'return' refers to a company's earnings over the last year. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.16 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
A Side By Side comparison of Alphamin Resources' Earnings Growth And 16% ROE
At first glance, Alphamin Resources seems to have a decent ROE. Especially when compared to the industry average of 8.5% the company's ROE looks pretty impressive. Probably as a result of this, Alphamin Resources was able to see an impressive net income growth of 57% over the last five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.
We then compared Alphamin Resources' 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 26% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Alphamin Resources''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Alphamin Resources Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 59% (implying that it keeps only 41% of profits) for Alphamin Resources suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Along with seeing a growth in earnings, Alphamin Resources only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders.
Conclusion
Overall, we are quite pleased with Alphamin Resources' performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Alphamin Resources' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
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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.
