Is the recent performance of Ganesh Housing Corporation Limited (NSE:GANESHHOUC) shares influenced by its fundamentals in any way?

Most readers already know that Ganesh Housing (NSE:GANESHHOUC) stock is up a significant 12% over the past week. We wonder if and what role company finances play in this price change, as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study the ROE of Ganesh Housing in this article.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

Check out our latest analysis for Ganesh Housing

How is ROE calculated?

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:

7.2% = ₹449m ÷ ₹6.2b (based on trailing twelve months to Dec 2021).

The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.07.

What does ROE have to do with earnings growth?

We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of Ganesh Housing’s earnings growth and 7.2% ROE

As you can see, Ganesh Housing’s ROE seems quite low. However, the fact that it is above the industry average of 4.0% interests us a little more. Or maybe not, given Ganesh Housing’s five-year net income drop of 50% 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, lower revenue could also be the result.

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 6, 4% over the same period.

NSEI: GANESHHOUC Past Earnings Growth February 5, 2022

Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. 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.

Does Ganesh Housing 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 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 that 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. Our risk dashboard would have the 2 risks we identified for Ganesh Housing.

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.

Comments are closed.