July 20, 2024
Finance

Is Bisalloy Steel Group Limited’s (ASX:BIS) Latest Stock Performance A Reflection Of Its Financial Health?


Most readers would already be aware that Bisalloy Steel Group’s (ASX:BIS) stock increased significantly by 15% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Bisalloy Steel Group’s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Put another way, it reveals the company’s success at turning shareholder investments into profits.

View our latest analysis for Bisalloy Steel Group

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Bisalloy Steel Group is:

19% = AU$14m ÷ AU$73m (Based on the trailing twelve months to June 2023).

The ‘return’ is the income the business earned over the last year. So, this means that for every A$1 of its shareholder’s investments, the company generates a profit of A$0.19.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Bisalloy Steel Group’s Earnings Growth And 19% ROE

To start with, Bisalloy Steel Group’s ROE looks acceptable. On comparing with the average industry ROE of 10% the company’s ROE looks pretty remarkable. This probably laid the ground for Bisalloy Steel Group’s significant 31% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.

We then compared Bisalloy Steel Group’s net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 23% in the same 5-year period.

past-earnings-growth

ASX:BIS Past Earnings Growth January 1st 2024

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Bisalloy Steel Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bisalloy Steel Group Making Efficient Use Of Its Profits?

The three-year median payout ratio for Bisalloy Steel Group is 43%, which is moderately low. The company is retaining the remaining 57%. So it seems that Bisalloy Steel Group is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that’s well covered.

Besides, Bisalloy Steel Group has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Bisalloy Steel Group’s performance. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. To know the 3 risks we have identified for Bisalloy Steel Group visit our risks dashboard for free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



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