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The Panache Digilife Limited (NSE:PANACHE) financials are too murky to relate to current share price momentum: what’s in store for the stock?

Most readers will already know that shares of Panache Digilife (NSE:PANACHE) are up a significant 32% over the past three months. However, we decided to pay attention to the fundamentals of the company which do not seem to give a clear indication of the financial health of the company. Concretely, we decided to study the ROE of Panache Digilife in this article.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simple terms, it is used to assess the profitability of a company in relation to its equity.

See our latest analysis for Panache Digilife

How is ROE calculated?

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 Panache Digilife is:

4.8% = ₹15 million ÷ ₹304 million (based on the last twelve months to March 2022).

“Yield” refers to a company’s earnings over the past year. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.05.

Why is ROE important for earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

Panache Digilife earnings growth and ROE of 4.8%

It is difficult to say that the ROE of Panache Digilife is very good in itself. Not only that, even compared to the industry average of 11%, the company’s ROE is quite unremarkable. For this reason, Panache Digilife’s 24% decline in net income over five years is not surprising given its low ROE. However, there could also be other factors leading to lower income. For example, the company has misallocated capital or the company has a very high payout ratio.

Moreover, even when compared to the industry, which cut profits at a rate of 8.8% over the same period, we found that Panache Digilife’s performance is quite disappointing, as it suggests that the company reduced its profits at a faster rate. than industry.

NSEI:PANACHE Past Earnings Growth July 1, 2022

The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is Panache Digilife correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Panache Digilife effectively reinvest its profits?

Although the company has paid a portion of its dividend in the past, it currently does not pay any dividend. This implies that potentially all of its profits are reinvested in the business.

Conclusion

Overall, we have mixed feelings about Panache Digilife. Although the company has a high reinvestment rate, the low ROE means that all this reinvestment does not benefit its investors and, moreover, it has a negative impact on earnings growth. In conclusion, we would proceed with caution with this business and one way to do that would be to review the risk profile of the business. To learn about the 5 risks we have identified for Panache Digilife, visit our risk dashboard for free.

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.