Does that require a further study of the financial outlook?

The Brighton Pier Group (LON: PIER) had a big run in the stock market, with its stock up a whopping 22% over the past month. As most know, fundamentals usually determine long-term market price movements. So today we decided to examine the company’s key financial indicators to see if they are playing a role in recent price action. In this article, we’ve chosen to focus on the Brighton Pier Group’s ROE.

ROE, or return on equity, is a useful tool for assessing how effectively a company can generate returns on the investments received from its shareholders. In other words, it shows the company’s success in turning shareholder investments into profits.

Check out our latest analysis for the Brighton Pier Group

How is the ROE calculated?

The ROE can be calculated using the formula:

Return on Equity = Net Income (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for the Brighton Pier Group is:

22% = UK £ 4.3m ÷ UK £ 19m (based on the last 12 months through June 2021).

The “return” is the profit for the past twelve months. That means the company made £ 0.22 in profit for every £ 1 worth of equity.

What is the Relationship Between ROE and Earnings Growth?

We have already established that ROE is an efficient profitable measure of a company’s future earnings. Based on how much of its profits the company will reinvest or “keep”, we can then assess a company’s future ability to generate profits. Assuming everything else stays the same, the higher the rate of growth of a company compared to companies that do not necessarily have these characteristics, the higher the ROE and earnings retention.

A side-by-side comparison of earnings growth and 22% ROE for the Brighton Pier Group

First off, the Brighton Pier Group has a pretty high ROE, which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 11%, which is quite remarkable. As you might expect, the 39% decline in net income reported by the Brighton Pier Group does not bode well for us. Because of this, we believe that there might be other reasons not discussed so far in this article that might be holding back the company’s growth. These include poor retained earnings or poor capital allocation.

The story goes on

As a next step, we compared the Brighton Pier Group’s performance against the industry and found that the Brighton Pier Group’s performance was depressing itself compared to the industry which shrank its profits 9.8% over the same period, which is slower than the company.

Earnings growth is a big factor in stock valuation. It is important for an investor to know if the market has factored in the company’s expected earnings growth (or decline). In this way, they have an idea of ​​whether the stock is leading into clear blue water or expecting swampy water. Is the Brighton Pier Group fairly valued compared to other companies? These 3 benchmarks can help you make a decision.

Is the Brighton Pier Group reinvesting its profits efficiently?

The Brighton Pier Group does not pay a dividend, which means the company keeps all of its profits. So other factors could play a role here that could potentially stifle growth. For example, the business has seen quite a bit of headwind.

summary

Overall, we think the Brighton Pier Group certainly has some positive factors to consider. However, given the high ROE and high earnings retention, we expect strong earnings growth for the company, but that’s not the case here. This suggests that there may be an external threat to the company that is holding back its growth. While we’re not going to fire the company entirely, we’re trying to figure out how risky the business is in order to make a more informed decision about the company. To see the 4 risks we’ve identified for the Brighton Pier Group, visit our Risk Dashboard for Free.

This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.

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