Loma Negra Compañía Industrial Argentina Sociedad Anónima's (NYSE:LOMA) stock is up by a considerable 47% 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. Specifically, we decided to study Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROE in this article.
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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Loma Negra Compañía Industrial Argentina Sociedad Anónima is:
11% = AR$66b ÷ AR$618b (Based on the trailing twelve months to June 2024).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.11 in profit.
What Is The Relationship Between ROE And 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.
A Side By Side comparison of Loma Negra Compañía Industrial Argentina Sociedad Anónima's Earnings Growth And 11% ROE
At first glance, Loma Negra Compañía Industrial Argentina Sociedad Anónima seems to have a decent ROE. Be that as it may, the company's ROE is still quite lower than the industry average of 15%. That being the case, the significant five-year 44% net income growth reported by Loma Negra Compañía Industrial Argentina Sociedad Anónima comes as a pleasant surprise. Therefore, there could be other causes behind this growth. Such as - high earnings retention or an efficient management in place. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this certainly also provides some context to the high earnings growth seen by the company.
As a next step, we compared Loma Negra Compañía Industrial Argentina Sociedad Anónima's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 22%.
NYSE:LOMA Past Earnings Growth October 28th 2024
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Loma Negra Compañía Industrial Argentina Sociedad Anónima's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Loma Negra Compañía Industrial Argentina Sociedad Anónima Efficiently Re-investing Its Profits?
Loma Negra Compañía Industrial Argentina Sociedad Anónima's three-year median payout ratio is a pretty moderate 32%, meaning the company retains 68% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting its earnings efficiently.
Besides, Loma Negra Compañía Industrial Argentina Sociedad Anónima has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 58% over the next three years. However, Loma Negra Compañía Industrial Argentina Sociedad Anónima's future ROE is expected to rise to 18% despite the expected increase in the company's payout ratio. We infer that there could be other factors that could be driving the anticipated growth in the company's ROE.
Summary
Overall, we are quite pleased with Loma Negra Compañía Industrial Argentina Sociedad Anónima's performance. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this freereport on analyst forecasts for the company to find out more.
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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.
