Amir Marketing and Investments in Agriculture (TLV: AMRK) stock is up 1.7% over the past week. The company’s financials look a bit inconsistent, however, and market outcomes are ultimately driven by long-term fundamentals, which means the stock could trade either way. In particular, in this article we decided to examine Amir Marketing and Investing in Agriculture ROE.
Return on Equity, or ROE, is a test of how effectively a company is increasing its value and managing investors’ money. Simply put, it’s used to evaluate a company’s profitability in relation to its equity.
Check out our latest analysis for Amir Marketing and Investing in Agriculture
How do you calculate the return on equity?
The Formula for ROE is:
Return on Equity = Net Income (from continuing operations) ÷ Equity
Based on the formula above, the ROE for Amir Marketing and Investing in Agriculture is:
2.6% = 8.3 million ÷ 322 million based (based on the last twelve months up to September 2020).
The “return” is the profit for the past twelve months. One way to conceptualize this is for the company to make a profit of 0.03 for every ₪ 1 shareholder equity. Scored.
What does ROE have to do with earnings growth?
We have already established that ROE is an efficient profit factor for a company’s future profits. Depending on how much of those profits the company reinvests or “retains” and how effectively this is done, we can then assess a company’s earnings growth potential. Assuming everything else stays the same, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that do not necessarily have these characteristics.
A comparison of Amir Marketing and Farming Profit Growth Investment and a 2.6% ROE side by side
It’s hard to argue that Amir marketing and investing in agriculture ROE is very good in and of itself. Not only that, even compared to the industry average of 5.9%, the company’s ROE is completely unremarkable. Therefore, it might not be wrong to say that the five-year 11% drop in net income at Amir Marketing and Agriculture Investing may be due to a lower ROE. We assume that other factors could also play a role here. For example, the company has poorly allocated capital or the company has a very high payout ratio.
That being said, we compared the performance of Amir Marketing and Investments in Agriculture against the industry and were concerned to find that while the company has shrunk profits, the industry has increased profits 6.5% over the same period.
TASE: AMRK Past Earnings Growth February 8, 2021
Earnings growth is a big factor in stock valuation. The investor should seek to determine whether expected growth or decline in earnings, as the case may be, is factored in. That way, he can determine whether the future of the stock is promising or threatening. If you are wondering about Amir Marketing and Agriculture Investments’ rating, check out this measure of value for money versus the industry.
Is Amir Marketing and Investing in Agriculture reinvesting its profits efficiently?
Given the three-year median payout rate of 35% (or a retention rate of 65%) which is pretty normal, Amir Marketing and Investments in Agriculture’s declining profits are rather confusing as one would expect decent growth to be seen if a The company keeps a good part of its profits. It seems that there are other reasons to explain the shortcoming in this regard. For example, business could be in decline.
In addition, Amir Marketing and Investments in Agriculture has paid dividends over a period of at least ten years. This means that the company’s management is determined to pay dividends, even if it means little to no earnings growth.
Overall, we have mixed feelings about Amir marketing and investing in agriculture. While it appears to be holding most of its profits given its low ROE, investors may not benefit from all of that reinvestment. The low earnings growth suggests our theory is correct. To conclude, we would be proceeding with caution with this company, and one way to do this would be to look at the risk profile of the business. To know the 4 risks we’ve identified for Amir Marketing and Agriculture Investing, visit our Risk Dashboard for Free.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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