Finance
Beeks Financial Cloud Group plc (LON:BKS) Stock Is Going Strong But Fundamentals Look Uncertain: What Lies Ahead ?
Most readers would already be aware that Beeks Financial Cloud Group’s (LON:BKS) stock increased significantly by 12% over the past three months. However, we wonder if the company’s inconsistent financials would have any adverse impact on the current share price momentum. In this article, we decided to focus on Beeks Financial Cloud 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. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
View our latest analysis for Beeks Financial Cloud Group
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 Beeks Financial Cloud Group is:
5.8% = UK£2.2m ÷ UK£37m (Based on the trailing twelve months to June 2024).
The ‘return’ is the income the business earned over the last year. That means that for every £1 worth of shareholders’ equity, the company generated £0.06 in profit.
So far, we’ve learned that ROE is a measure of a company’s profitability. 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.
At first glance, Beeks Financial Cloud Group’s ROE doesn’t look very promising. Next, when compared to the average industry ROE of 17%, the company’s ROE leaves us feeling even less enthusiastic. Hence, the flat earnings seen by Beeks Financial Cloud Group over the past five years could probably be the result of it having a lower ROE.
As a next step, we compared Beeks Financial Cloud Group’s net income growth with the industry and discovered that the company’s growth is slightly less than the industry average growth of 0.9% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you’re wondering about Beeks Financial Cloud Group’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
While the company did pay out a portion of its dividend in the past, it currently doesn’t pay a regular dividend. We infer that the company has been reinvesting all of its profits to grow its business.
In total, we’re a bit ambivalent about Beeks Financial Cloud Group’s performance. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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.