Decline in stocks and decent financials: Is the market wrong on the public joint-stock company Novorossiysk Commercial Sea Port (MCX: NMTP)?
With its stock down 17% in the past three months, it’s easy to overlook the commercial seaport of Novorossiysk (MCX: NMTP). However, the company’s fundamentals look pretty decent and long-term financials are generally in line with future market price movements. In particular, we will pay special attention to the ROE of the commercial seaport of Novorossiysk today.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Check out our latest analysis for Novorossiysk Commercial Seaport
How to calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Novorossiysk commercial seaport is:
18% = $242 million ÷ $1.3 billion (based on trailing 12 months to September 2021).
“Yield” refers to a company’s earnings over the past year. This means that for every RUB1 of equity, the company generated 0.18 RUB of profit.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Profit growth and 18% ROE of Novorossiysk commercial seaport
At first glance, the commercial seaport of Novorossiysk seems to have a decent ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 9.9%. As expected, the 10% drop in net income reported by the commercial seaport of Novorossiysk is a bit surprising. We feel there could be other factors at play here that are preventing the company from growing. For example, the company pays a large portion of its profits in the form of dividends or faces competitive pressures.
However, when we compared the growth of the commercial seaport of Novorossiysk with the industry, we found that, although the company’s profits fell, the industry recorded a profit growth of 2.7% in the during the same period. It’s quite worrying.
Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. Is Novorossiysk Commercial Seaport Fairly Valued Compared to Other Businesses? These 3 assessment metrics might help you decide.
Does Novorossiysk Commercial Seaport Use Its Profits Effectively?
Considering its three-year median payout rate of 37% (or 63% retention rate), which is fairly normal, Novorossiysk’s commercial seaport’s declining profits are rather disconcerting, as one s I would expect to see good growth when a company is retaining a good portion of its profits. It seems that there could be other reasons for the lack in this regard. For example, the business might be in decline.
Furthermore, the commercial seaport of Novorossiysk has paid dividends over a period of at least ten years, suggesting that maintaining the payment of dividends is far more important for management, even if it comes at the expense of the business growth.
All in all, we believe that the Novorossiysk commercial seaport certainly has positive factors to consider. Still, the weak earnings growth is a bit of a concern, especially since the company has a high rate of return and reinvests a huge portion of its earnings. At first glance, there could be other factors, which do not necessarily control the business, that are preventing growth. While we wouldn’t completely dismiss the business, what we would do is try to figure out how risky the business is to make a more informed decision about the business. Our Risk Dashboard will contain the 1 risk we have identified for Novorossiysk Commercial Seaport.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.