Is the latest stock market performance of Wirtualna Polska Holding SA (WSE: WPL) a reflection of its financial health?

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The stock of Wirtualna Polska Holding (WSE: WPL) has risen significantly by 15% in the past three months. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. In particular, we will pay particular attention to the ROE of Wirtualna Polska Holding today.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.

See our latest review for Wirtualna Polska Holding

How is the ROE calculated?

Return on equity can be calculated using the formula:

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

Thus, based on the above formula, the ROE of Wirtualna Polska Holding is:

22% = zł137m zł626m (Based on the last twelve months up to June 2021).

“Return” refers to a company’s profits over the past year. Another way to think about this is that for every 1 PLN worth of equity, the company was able to make a profit of 0.22 PLN.

What does ROE have to do with profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. Based on how much of those profits the company reinvests or “withholds” and how efficiently it does so, we are then able to assess a company’s profit growth potential. Assuming everything else 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.

Wirtualna Polska Holding profit growth and 22% ROE

To begin with, the ROE of Wirtualna Polska Holding seems acceptable. Especially compared to the industry average of 13%, the company’s ROE looks pretty impressive. It is probably because of this that Wirtualna Polska Holding has achieved impressive net profit growth of 22% over the past five years. We believe that there could also be other aspects that positively influence the company’s profit growth. For example, the business has a low payout ratio or is managed efficiently.

We then compared Wirtualna Polska Holding’s net income growth with the industry and found that the company’s growth figure is lower than the industry average growth rate of 32% over the same period, which is a bit disturbing.

WSE: WPL Past Profit Growth Aug 26, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine whether the future of the stock looks bright or threatening. Is Wirtualna Polska Holding fair valued compared to other companies? These 3 evaluation measures could help you decide.

Does Wirtualna Polska Holding use its retained earnings efficiently?

Wirtualna Polska Holding’s three-year median payout ratio is quite moderate at 44%, which means the company keeps 56% of its revenue. At first glance, the dividend is well hedged and Wirtualna Polska Holding is reinvesting its profits efficiently as evidenced by its exceptional growth which we mentioned above.

In addition, Wirtualna Polska Holding paid dividends over a period of four years. This shows that the company is committed to sharing the profits with its shareholders.

Summary

Overall, we are quite satisfied with the performance of Wirtualna Polska Holding. In particular, we like the fact that the company is reinvesting heavily in its business and at a high rate of return. As a result, its decent profit growth is not surprising. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. 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.

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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 material. Simply Wall St does not have any position in the mentioned stocks.
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