Should Weakness in Compañía De Minas Buenaventura S.A.A.'s (NYSE:BVN) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

Simply Wall St · Sep 16 13:46

Compañía de Minas BuenaventuraA (NYSE:BVN) has had a rough three months with its share price down 21%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. In this article, we decided to focus on Compañía de Minas BuenaventuraA's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Compañía de Minas BuenaventuraA is:

3.5% = US$114m ÷ US$3.3b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.03 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Compañía de Minas BuenaventuraA's Earnings Growth And 3.5% ROE

As you can see, Compañía de Minas BuenaventuraA's ROE looks pretty weak. Even compared to the average industry ROE of 9.8%, the company's ROE is quite dismal. In spite of this, Compañía de Minas BuenaventuraA was able to grow its net income considerably, at a rate of 40% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Compañía de Minas BuenaventuraA's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 24% in the same 5-year period.

big — NYSE:BVN Past Earnings Growth September 16th 2024

Earnings growth is an important metric to consider when valuing a stock. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Compañía de Minas BuenaventuraA fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Compañía de Minas BuenaventuraA Using Its Retained Earnings Effectively?

Compañía de Minas BuenaventuraA's ' three-year median payout ratio is on the lower side at 18% implying that it is retaining a higher percentage (82%) of its profits. So it looks like Compañía de Minas BuenaventuraA is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Moreover, Compañía de Minas BuenaventuraA is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 18%. Regardless, the future ROE for Compañía de Minas BuenaventuraA is predicted to rise to 8.5% despite there being not much change expected in its payout ratio.

Summary

Overall, we feel that Compañía de Minas BuenaventuraA certainly does have some positive factors to consider. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.