Quantum Software SA (WSE: QNT) shares fell, but fundamentals look solid: is the market wrong?
Quantum Software (WSE: QNT) had a difficult month with its share price down 21%. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. In particular, we will be paying close attention to the ROE of Quantum Software today.
Return on equity or ROE is an important factor for a shareholder to consider because it tells them how effectively 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 Quantum Software
How to calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Quantum Software is:
43% = zł7.1m zł17m (Based on the last twelve months up to June 2021).
The “return” is the profit of the last twelve months. Another way to look at this is that for every PLN 1 worth of equity, the company was able to make a profit of PLN 0.43.
Why is ROE important for profit growth?
So far we’ve learned that ROE is a measure of a company’s profitability. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Quantum Software profit growth and 43% ROE
For starters, Quantum Software has a pretty high ROE, which is interesting. Second, a comparison with the industry-reported average ROE of 26% doesn’t go unnoticed for us either. Under these circumstances, quantum Software’s significant five-year net profit growth of 31% was to be expected.
As a next step, we compared the growth of Quantum Software’s net income with the industry, and luckily, we found that the growth observed by the company is above the industry average growth of 12%.
Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. If you’re wondering about Quantum Software’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is Quantum Software Efficiently Reinvesting Its Profits?
The high median payout rate of 59% over three years (implying that it retains only 41% of profits) for Quantum Software suggests that the growth of the company has not been really hampered despite the return of the Most of the profits to its shareholders.
In addition, Quantum Software has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders.
Overall, we think Quantum Software’s performance has been quite good. We are particularly impressed with the considerable profit growth displayed by the company, which has likely been supported by its high ROE. Although the company pays out most of its profits as dividends, it was able to increase its profits despite this, so this is probably a good sign. So far, we’ve only scratched the surface of the company’s past performance by looking at the fundamentals of the business. So maybe it’s worth checking this out free detailed graphic past earnings from Quantum Software, as well as revenue and cash flow to gain a deeper insight into how the business is performing.
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 documents. Simply Wall St has no position in any of the stocks mentioned.
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