Sjaj U Tami a.d.'s (BELEX:GRDN) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St · 10/18 06:31

Sjaj U Tami a.d (BELEX:GRDN) has had a great run on the share market with its stock up by a significant 29% over the last week. 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 Sjaj U Tami a.d'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Sjaj U Tami a.d

How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Sjaj U Tami a.d is:

25% = дин101m ÷ дин400m (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. So, this means that for every RSD1 of its shareholder's investments, the company generates a profit of RSD0.25.

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Sjaj U Tami a.d's Earnings Growth And 25% ROE

To begin with, Sjaj U Tami a.d has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 5.4% the company's ROE is quite impressive. So, the substantial 59% net income growth seen by Sjaj U Tami a.d over the past five years isn't overly surprising.

As a next step, we compared Sjaj U Tami a.d'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 3.5%.

past-earnings-growth
BELEX:GRDN Past Earnings Growth October 18th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. 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 prospects. So, you may want to check if Sjaj U Tami a.d is trading on a high P/E or a low P/E, relative to its industry.

Is Sjaj U Tami a.d Efficiently Re-investing Its Profits?

Sjaj U Tami a.d doesn't pay any regular dividends 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

Overall, we are quite pleased with Sjaj U Tami a.d's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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. You can see the 4 risks we have identified for Sjaj U Tami a.d by visiting our risks dashboard for free on our platform here.