Ganesh Housing Corporation Limited (NSE:GANESHHOUC) Stock on an Uptrend: Could Fundamentals Be Driving the Momentum?
Ganesh Housing (NSE: GANESHHOUC) stock is up 23% over the past month. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. Specifically, we decided to study the ROE of Ganesh Housing 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.
Check out our latest analysis for Ganesh Housing
How to calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Ganesh Housing is:
8.0% = ₹706 million ÷ ₹8.8 billion (based on the last twelve months to March 2022).
“Yield” refers to a company’s earnings over the past year. This means that for every ₹1 of equity, the company generated ₹0.08 of profit.
Why is ROE important for earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. 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 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.
Ganesh Housing earnings growth and ROE of 8.0%
It is clear that the ROE of Ganesh Housing is rather low. However, compared to the industry average of 4.5%, we believe there is definitely more for the company to do. Or maybe not, given Ganesh Housing’s 38% five-year drop in net income over the past five years. Keep in mind that the company has a low ROE. It’s just that the industry’s ROE is lower. Therefore, this partly explains the drop in income.
That being said, we compared Ganesh Housing’s performance with that of the industry and became concerned when we found that while the company had reduced profits, the industry had increased profits at a rate of 4, 6% over the same period.
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 then helps them determine whether the action is placed for a bright or bleak future. A 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 outlook. Thus, you might want to check whether Ganesh Housing is trading on a high P/E or a low P/E, relative to its industry.
Is Ganesh Housing effectively using its retained earnings?
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.
Overall, we feel Ganesh Housing has positive attributes. However, we are disappointed to see a lack of earnings growth, even despite a moderate ROE and high reinvestment rate. We believe there could be external factors that could negatively impact the business. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. To learn about the 2 risks we have identified for Ganesh Housing, visit our Risk Dashboard for free.
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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.