WEBULL

Is Grupo Média Capital, SGPS, S.A.'s (ELI:MCP) Stock Price Struggling As A Result Of Its Mixed Financials?

Simply Wall St · 05/15 05:03

Grupo Média Capital SGPS (ELI:MCP) has had a rough three months with its share price down 13%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. In this article, we decided to focus on Grupo Média Capital SGPS' ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

How Is ROE Calculated?

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 Grupo Média Capital SGPS is:

9.5% = €9.3m ÷ €98m (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.09 in profit.

See our latest analysis for Grupo Média Capital SGPS

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively 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 higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Grupo Média Capital SGPS' Earnings Growth And 9.5% ROE

When you first look at it, Grupo Média Capital SGPS' ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 9.2%, we may spare it some thought. Looking at Grupo Média Capital SGPS' exceptional 68% five-year net income growth in particular, we are definitely impressed. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Grupo Média Capital SGPS' 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 17%.

past-earnings-growth
ENXTLS:MCP Past Earnings Growth May 15th 2025

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Grupo Média Capital SGPS fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Grupo Média Capital SGPS Making Efficient Use Of Its Profits?

Grupo Média Capital SGPS' very high LTM (or last twelve month) payout ratio of 2,197% suggests that the company is paying more to its shareholders than what it is earning. Despite this, the company's earnings grew significantly as we saw above. Although, it could be worth keeping an eye on the high payout ratio as that's a huge risk. To know the 2 risks we have identified for Grupo Média Capital SGPS visit our risks dashboard for free.

Additionally, Grupo Média Capital SGPS has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.

Conclusion

Overall, we have mixed feelings about Grupo Média Capital SGPS. While the company has posted impressive earnings growth, its poor ROE and low earnings retention makes us doubtful if that growth could continue, if by any chance the business is faced with any sort of risk. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Grupo Média Capital SGPS' past profit growth, check out this visualization of past earnings, revenue and cash flows.