LOG Commercial Properties e Participações S.A. (BVMF:LOGG3) Stock’s Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?
With the stock down 15% over the past three months, LOG Commercial Properties e Participações (BVMF: LOGG3) can easily be disregarded. However, stock prices are usually determined by a company’s financial data over the long term, which looks pretty respectable in this case. In particular, today we will pay attention to the ROE of LOG Commercial Properties e Participações.
ROE, or return on equity, is a useful tool for assessing how effectively a company can generate a return on the investment received from its shareholders. In simpler terms, it measures a company’s profitability in relation to equity.
Check out our latest analysis for LOG Commercial Properties e Participações
How is the ROE calculated?
The Formula for the return on equity is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So based on the above formula, the ROE for LOG Commercial Properties e Participações is:
4.6% = R $ 143 million ÷ R $ 3.1 billion (based on the last twelve months up to December 2020).
The “return” is the amount earned after tax over the past twelve months. One way to conceptualize this is for the company to make a profit of R $ 0.05 for every R $ 1 of share capital.
What does ROE have to do with earnings growth?
So far we have learned that the ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth to get an idea of the company’s growth potential. Assuming all else is equal, companies that have both higher return on equity and higher retained earnings typically have a higher growth rate than companies that do not share the same characteristics.
LOG Commercial Properties and Participant Earnings Growth and 4.6% ROE
As you can see, the ROE from LOG Commercial Properties e Participações looks pretty weak. Even when compared to the industry’s average ROE of 5.9%, the company’s ROE is pretty grim. However, we are pleasantly surprised to see that LOG Commercial Properties e Participações has grown its net profit at a significant rate of 32% over the past five years. Hence there could be other reasons for this growth. For example – high profit retention or efficient management.
As a next step, we compared the net profit growth of LOG Commercial Properties e Participações with the industry and happily found that the growth of the company is above the average industry growth of 25%.
BOVESPA: LOGG3 Past Earnings Growth Feb 15, 2021
Earnings growth is a big factor in stock valuation. It is important for an investor to know if the market has priced in the company’s expected earnings growth (or decline). This way, they have an idea of whether the stock is being directed into clear blue water or whether marshy water is waiting for it. If you are wondering about the rating of LOG Commercial Properties e Participações, look at this measure of value for money compared to the industry.
Is LOG Commercial Properties e Participações effectively using the retained earnings?
LOG Commercial Properties e Participações has a really low average payout ratio of 18% for three years which means the remaining 82% is left to invest in its business again. This suggests that management is reinvesting most of the profits to grow the business. This can be seen in the company’s growth.
While LOG Commercial Properties e Participações posted earnings growth, it has only recently started paying a dividend. It is very likely that the company decided to impress new and existing shareholders with a dividend. Based on the latest analyst estimates, we’ve determined that the company’s future payout ratio is expected to remain stable at 19% for the next three years. Accordingly, forecasts indicate that the future ROE of LOG Commercial Properties e Participações will be 4.4%, which in turn corresponds to the current ROE.
Overall, we believe that LOG Commercial Properties e Participações certainly has some positive factors to consider. Despite the low return, the company posted impressive earnings growth as it reinvested heavily in its business. With that in mind, a study of the latest analyst forecast shows that the company’s future earnings growth is likely to slow. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to go to our analyst’s forecast page for the company.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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