Link investor

Outdoorzy SA (WSE:OUT) financials are too murky to relate to current stock price momentum: What does the stock hold?

Outdoorzy (WSE:OUT) stock is up 44% over the past week. However, we wonder if the company’s inconsistent financial statements would negatively impact the current share price dynamics. In particular, we’ll be paying attention to Outdoorzy’s ROE today.

Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simple terms, it is used to assess the profitability of a company in relation to its equity.

Check out our latest analysis for Outdoorzy

How do you calculate return on equity?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Outdoorzy is:

9.7% = 212,000 zł ÷ 2.2 million zł (based on the last twelve months until September 2021).

The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every PLN1 of share capital it has, the company has made a profit of 0.10 PLN.

What is the relationship between ROE and earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

Outdoorzy earnings growth and ROE of 9.7%

At first glance, Outdoorzy’s ROE does not look very promising. However, since the company’s ROE is similar to the industry average ROE of 9.7%, we can spare it some thought. Even so, Outdoorzy posted a pretty decent growth in net income which grew at a rate of 12%. Given the moderately low ROE, it is quite possible that other aspects positively influence the company’s earnings growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio.

We then compared Outdoorzy’s net income growth with the industry and found that the company’s growth figure is below the average industry growth rate of 24% over the same period, which which is a little worrying.

WSE: OUT Past Earnings Growth March 7, 2022

Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. If you’re wondering about Outdoorzy’s valuation, check out this indicator of its price-earnings ratio, relative to its sector.

Does Outdoorzy use its profits effectively?

Outdoorzy has a significant three-year median payout ratio of 53%, which means he only has 47% left to reinvest in his business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Outdoorzy paid dividends over a three-year period. This shows that the company is committed to sharing profits with its shareholders.

Summary

All in all, we’re a bit ambivalent about Outdoorzy’s performance. Although the company has shown fairly strong earnings growth, the rate of reinvestment is low. This means that the earnings growth figure could have been significantly higher had the company retained more of its earnings and reinvested it at a higher rate of return. So far, we’ve only scratched the surface of the company’s past performance by looking at the company’s fundamentals. You can do your own research on Outdoorzy and see how it has performed in the past by watching this FREE detailed graph past profits, revenue and cash flow.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.