Will the weakness in Tanla Platforms Limited (NSE:TANLA) shares prove temporary given the strong fundamentals?
With its stock down 14% in the past month, it’s easy to overlook the Tanla platforms (NSE: TANLA). But if you pay close attention, you might realize that its strong financials could mean the stock could potentially see a long-term rise in value, as the markets generally reward companies in good financial shape. Specifically, we decided to study the ROE of Tanla Platforms in this article.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In simpler terms, it measures a company’s profitability relative to equity.
See our latest analysis for Tanla platforms
How is ROE calculated?
The ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Tanla platforms is:
40% = ₹5.4 billion ÷ ₹14 billion (based on the last twelve months to March 2022).
The “return” is the annual profit. This means that for every ₹ of equity, the company generated ₹0.40 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 all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Tanla Platforms profit growth and 40% ROE
For starters, Tanla Platforms has a pretty high ROE, which is interesting. Second, even compared to the industry average of 12%, the company’s ROE is quite impressive. Thus, the substantial net income growth of 57% seen by Tanla Platforms over the past five years is not too surprising.
As a next step, we compared Tanla Platforms’ net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 11%.
Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This then helps them determine if the stock is positioned for a bright or bleak future. If you’re wondering about the valuation of Tanla Platforms, check out this indicator of its price-earnings ratio, relative to its sector.
Is Tanla Platforms effectively using its retained earnings?
Tanla Platforms’ three-year median payout ratio to shareholders is 5.0%, which is quite low. This implies that the company retains 95% of its profits. So it looks like management is massively reinvesting earnings to grow their business, which is reflected in their earnings growth.
Also, Tanla Platforms has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be around 4.3%. However, Tanla Platforms’ future ROE is expected to decline to 28% despite little change expected in the company’s payout ratio.
Overall, we are quite happy with the performance of Tanla Platforms. In particular, it is good to see that the company is investing heavily in its business, and together with a high rate of return, this has led to significant growth in its profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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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.