Does the impressive performance of Deepak Fertilizers And Petrochemicals Corporation Limited (NSE: DEEPAKFERT) shares have something to do with its fundamentals?
Deepak Fertilizers And Petrochemicals (NSE: DEEPAKFERT) shares have risen 77% in the past three months. As most know, fundamentals typically guide long-term market price movements, so we decided to look at the company’s key financial metrics today to see if they have a role to play in the recent one. price movement. In this article, we have decided to focus on the ROE of Deepak Fertilizers And Petrochemicals.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
See our latest review for Deepak Fertilizers And Petrochemicals
How to calculate return on equity?
the formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Deepak fertilizers and petrochemicals is:
15% = ₹ 4.1b ÷ ₹ 28b (Based on the last twelve months up to March 2021).
The “return” is the profit of the last twelve months. This means that for every 1 of equity, the company generated ₹ 0.15 in profit.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics. .
A Side-by-Side Comparison of Deepak Fertilizers And Petrochemicals Profit Growth and 15% ROE
At first glance, the ROE of Deepak Fertilizers And Petrochemicals is not much to say. Still, further study shows that the company’s ROE is similar to the industry average of 13%. Despite this, Deepak Fertilizers And Petrochemicals posted fairly decent growth in its bottom line which grew at a rate of 14%. Given the slightly low ROE, it is likely that other aspects are behind this 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 performed a comparison between the growth of Deepak Fertilizers And Petrochemicals’ net income with the industry, which found that the growth of the company is similar to the average industry growth of 14% over the same period. period.
Profit growth is an important metric to consider when valuing a stock. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading towards clear blue waters or if swampy waters are ahead of them. Is Deepak Fertilizers And Petrochemicals fairly rated against other companies? These 3 evaluation measures could help you decide.
Is Deepak Fertilizers And Petrochemicals Using Its Retained Earnings Effectively?
Deepak Fertilizers And Petrochemicals has a three-year median payout rate of 32%, which means it keeps the remaining 68% of its profits. This suggests that its dividend is well hedged and, given the decent growth of the company, it appears that management is reinvesting its earnings in an efficient manner.
In addition, Deepak Fertilizers And Petrochemicals is committed to continuing to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years.
Overall, we think Deepak Fertilizers And Petrochemicals has some positive attributes. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. While we don’t completely reject the business, what we would do is try to determine how risky the business is to make a more informed decision about the business. Our risk dashboard would contain the 4 risks we have identified for Deepak Fertilizers And Petrochemicals.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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