Internet Union (WSE:IUS) has been doing well on the stock market, with its shares up a hefty 29% over the past month. Since the market usually pays for a company’s long-term fundamentals, we decided to investigate whether a company’s key performance indicators are influencing the market. Specifically, in this article we decided to investigate Internet Union’s ROE.
Return on equity or ROE is a key measure used to evaluate how efficiently a company’s management is utilizing the company’s capital. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for Internet Union.
How do you calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, Internet Union’s ROE is:
17% = zł3.0m ÷ zł17m (Based on trailing 12 months to December 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. That is, for every PLN of a shareholder’s investment, the company will generate a profit of 0.17 PLN for him.
What relationship does ROE have with profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company’s growth potential. Assuming all else is equal, companies with both higher return on equity and higher profit retention typically have higher growth rates when compared to companies that don’t have the same characteristics.
Internet Union’s Revenue Growth and ROE 17%
First, Internet Union’s ROE looks acceptable. Even compared to the industry average of 16%, the company’s ROE looks pretty decent. This probably goes some way to explaining Internet Union’s strong 32% growth in net income over the past five years, among other factors. We believe there are also other aspects that are positively impacting the company’s earnings growth. For example, the company’s management may have made good strategic decisions, or the company may have a low dividend payout ratio.
We then compared Internet Union’s net income growth rate with the industry and found that the company’s reported growth rate is similar to the industry’s average growth rate of 28% over the past few years.
The foundations that give a company value have a lot to do with its revenue growth. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. Doing so will help you determine whether a stock’s future is 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 outlook. So you might want to check whether Internet Union is trading on a higher or lower P/E relative to its industry.
Is the Internet Federation effectively utilizing its profits?
Internet Union does not pay dividends to shareholders, meaning the company reinvests all of its profits back into its business. This is likely what is driving the high earnings growth rate discussed above.
conclusion
Overall, we are very satisfied with Internet Union’s performance. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company’s revenue. If the company continues to grow its revenue as it has been, this could have a positive impact on the stock price, given how earnings per share affect the stock price over the long term. Don’t forget that business risk is also one of the factors that affect stock prices. Therefore, this is also an important area that investors need to pay attention to before making decisions about the business. You can review the three risks we have identified regarding Internet Union by visiting our website. risk dashboard It is available for free on this platform.
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis, including below, to see if Internet Union is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
