Does the market reward Craneware plc (LON: CRW) with negative sentiment due to its mixed fundamentals?

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It’s hard to get excited after looking at the recent performance of Craneware (LON: CRW), as its stock has fallen 6.3% in the past month. We did, however, decide to study the company’s financial statements to determine if they had anything to do with falling prices. Fundamentals usually dictate market outcomes, so it makes sense to study company finances. In this article, we have decided to focus on the ROE of Craneware.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

Check out our latest review for Craneware

How to calculate return on equity?

The return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, Craneware’s ROE is:

5.0% = US $ 13 million ÷ US $ 260 million (based on the last twelve months to June 2021).

The “return” is the annual profit. One way to conceptualize this is that for every £ 1 of shareholder capital it has, the company has made £ 0.05 in profit.

What is the relationship between ROE and 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. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

Craneware profit growth and 5.0% ROE

At first glance, Craneware’s ROE isn’t much to say. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 13%. However, the moderate 5.9% net profit growth seen by Craneware over the past five years is definitely positive. Thus, there could be other aspects that positively influence the growth of the company’s profits. 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.

As a next step, we compared Craneware’s net income growth with the industry and were disappointed to see that the company’s growth is below the industry average growth of 13% over the same period. .

AIM: CRW Past Profit Growth October 28, 2021

Profit growth is a huge factor in the valuation of stocks. 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 for clear blue waters or if swampy waters are ahead of them. Is Craneware properly rated against other companies? These 3 evaluation measures could help you decide.

Is Craneware Efficiently Reinvesting Its Profits?

The high three-year median payout rate of 55% (or a retention rate of 45%) for Craneware suggests that the growth of the company has not really been hampered despite returning most of its revenue to its own. shareholders.

In addition, Craneware has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 49%. Either way, Craneware’s future ROE is expected to reach 9.5%, although there isn’t much expected change in its payout ratio.

Conclusion

Overall, we have mixed feelings about Craneware. Although the company has shown good profit growth, the reinvestment rate is low. This means that the number of profit growth could have been considerably higher if the company had kept more of its profits and reinvested them at a higher rate of return. However, the latest analyst forecasts show that the company will continue to see its profits increase. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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 documents. Simply Wall St has no position in any of the stocks mentioned.

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