Unimot SA (WSE:UNT) shares are doing well: is the market following the fundamentals?
Unimot (WSE:UNT) has had a strong run in the equity market with a significant 32% rise in its stock over the past month. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could influence the market. In this article, we decided to focus on of the Unimot DEER.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Our analysis indicates that The UNT is potentially undervalued!
How do you calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for Unimot is:
39% = 189 million zł ÷ 486 million zł (based on the last twelve months until June 2022).
The “return” is the annual profit. This therefore means that for each investment of 1 PLN by its shareholder, the company generates a profit of 0.39 PLN.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of Unimot’s earnings growth and 39% ROE
First, we recognize that Unimot has a significantly high ROE. Second, a comparison to the average industry-reported ROE of 23% also does not go unnoticed by us. As a result, Unimot’s exceptional net income growth of 48% over the past five years comes as no surprise.
Then, comparing with the industry net income growth, we found that Unimot’s growth is quite high compared to the average industry growth of 11% over the same period, which is great to see.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. If you are wondering about the Unimot rating, check out this gauge of its price/earnings ratioin relation to its industry.
Does Unimot effectively reinvest its profits?
Unimot’s three-year median payout ratio to shareholders is 22%, which is quite low. This implies that the company retains 78% of its profits. So it looks like Unimot is massively reinvesting its profits to grow its business, which can be seen in the growth in its profits.
In addition, Unimot is determined to continue sharing its profits with shareholders, which we infer from its nine-year long history of paying dividends.
All in all, we are quite satisfied with the performance of Unimot. In particular, it is good to see that the company is investing heavily in its business and, along with a high rate of return, this has resulted in significant growth in its profits. If the company continues to increase earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Not to mention that stock price results also depend on the potential risks that a company may face. It is therefore important for investors to be aware of the risks associated with the business. To find out about the 1st risk we have identified for Unimot visit our risk dashboard for free.
Valuation is complex, but we help make it simple.
Find out if Unimot is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.