Endurance Technologies Limited’s (NSE: ENDURANCE) stock is going strong: does the market fundamentally follow?

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Endurance Technologies (NSE: ENDURANCE) has had a good run in the stock market with its stock rising by a significant 41% over the last three months. Given the company’s impressive performance, we decided to examine its financial indicators in more detail, as a company’s long – term financial health usually dictates market performance. Specifically, we decided to study Endurance Technologies’ ROE in this article.

ROE or return on equity is a useful tool for assessing how effectively a company can generate return on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the return on capital provided by the company’s shareholders.

Check out our latest analysis of Endurance Technologies

How to calculate return on equity?

That formula for ROE is:

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

So based on the above formula, ROE for Endurance Technologies is:

14% = ₹ 4.4b ÷ ₹ 32b (Based on the subsequent twelve months to December 2020).

‘Return’ refers to a company’s earnings over the past year. So this means that for every ₹ 1 of the shareholder’s investments, the company generates a profit of ₹ 0.14.

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 this profit the company reinvests or “retains” and how effectively it does so, we are then able to assess a company’s earnings growth potential. In general, companies with a high return on equity and profits, all other things being equal, have a higher growth rate than companies that do not share these attributes.

Endurance Technologies’ earnings growth and 14% ROE

At first glance, Endurance Technologies’ ROE does not look very promising. However, the fact that the company’s ROE is higher than the average industry ROE of 6.2% is certainly interesting. This is likely to explain Endurance Technologies’ 11% growth over the past five years, among other factors. Remember that the company has a moderately low ROE. It’s just that ROE in the industry is lower. So there may well be other reasons why earnings are growing. Eg. Does the company have a low payout ratio or may belong to a high growth industry.

Then, when we compared with the industry’s net income growth, we found that the growth figure reported by Endurance Technologies compares quite favorably with the industry average, showing a decrease of 0.7% in the same period.

NSEI: ENDURANCE Growth in past earnings February 15, 2021

Earnings growth is an important measure to consider when evaluating a stock. The investor must try to determine whether the expected growth or decline in earnings, as the case may be, is priced. This then helps them decide if the stock will be placed in a bright or gloomy future. A good indicator of expected earnings growth is the P / E ratio, which determines the price the market is willing to pay for a stock based on its earnings opportunities. So maybe you will check whether Endurance Technologies is trading at a high P / E or a low P / E, in relation to its industry.

Is Endurance Technologies effectively investing its profits?

Endurance Technologies has a low three-year median payout ratio of 14%, which means the company retains the remaining 86% of its profits. This suggests that management is reinvesting most of the profits to grow the business.

In addition, Endurance Technologies is determined to continue to share its profits with shareholders, which we deduce from its long history of four-year dividends. Based on the estimates of recent analysts, we found that the company’s future payout ratio is expected to remain stable at 16% over the next three years. Nevertheless, forecasts suggest that Endurance Technologies’ future return on investment will increase to 19%, although the company’s payout ratio is not expected to change much.

Conclusion

By and large, we feel that Endurance Technologies’ performance has been pretty good. In particular, we like that the company is reinvesting heavily in its business with a moderate return. Not surprisingly, this has led to an impressive growth in earnings. When that is the case, recent analyst forecasts show that the company will continue to see an expansion in its earnings. Are the expectations of these analysts based on the broad expectations of the industry or on the fundamentals of the company? Click here to be taken to our analyst’s forecast page for the company.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any shares and does not take into account your goals or your financial situation. We strive to provide you with long-term focused analysis driven by basic data. Please note that our analysis may not include the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in the mentioned stocks.
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