Yahoo Finance Will Weakness in BluMetric Environmental Inc.'s (CVE:BLM) Stock Prove Temporary Given Strong Fundamentals?
With its stock down 26% over the past three months, it is easy to disregard BluMetric Environmental (CVE:BLM). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study BluMetric Environmental's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for BluMetric Environmental
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 BluMetric Environmental is:
38% = CA$3.7m ÷ CA$9.9m (Based on the trailing twelve months to September 2021).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each CA$1 of shareholders' capital it has, the company made CA$0.38 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. 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 38% ROE
First thing first, we like that BluMetric Environmental has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 6.7% which is quite remarkable. So, the substantial 25% net income growth seen by BluMetric Environmental over the past five years isn't overly surprising.
We then performed a comparison between BluMetric Environmental's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 27% in the same period.
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. If you're wondering about BluMetric Environmental's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is BluMetric Environmental Using Its Retained Earnings Effectively?
BluMetric Environmental 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.
Summary
On the whole, we feel that BluMetric Environmental's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 3 risks we have identified for BluMetric Environmental visit our risks dashboard for free.
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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.
