CPI Computer Peripherals International (ATH:CPI) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future? - Simply Wall St - Financial Daily News Site

CPI Computer Peripherals International (ATH:CPI) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future? – Simply Wall St

It is hard to get excited after looking at CPI Computer Peripherals International’s (ATH:CPI) recent performance, when its stock has declined 18% over the past three months. 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. Particularly, we will be paying attention to CPI Computer Peripherals International’s ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for CPI Computer Peripherals International

How Do You Calculate Return On Equity?

Return on equity 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 CPI Computer Peripherals International is:

5.2% = €147k ÷ €2.8m (Based on the trailing twelve months to December 2021).

The ‘return’ is the profit over the last twelve months. That means that for every €1 worth of shareholders’ equity, the company generated €0.05 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. 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.

CPI Computer Peripherals International’s Earnings Growth And 5.2% ROE

When you first look at it, CPI Computer Peripherals International’s ROE doesn’t look that attractive. A quick further study shows that the company’s ROE doesn’t compare favorably to the industry average of 12% either. However, we we’re pleasantly surprised to see that CPI Computer Peripherals International grew its net income at a significant rate of 23% in the last five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared CPI Computer Peripherals International’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 13% in the same period.

past-earnings-growth
ATSE:CPI Past Earnings Growth May 27th 2022

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is CPI Computer Peripherals International fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is CPI Computer Peripherals International Making Efficient Use Of Its Profits?

CPI Computer Peripherals International doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Conclusion

Overall, we feel that CPI Computer Peripherals International certainly does have some positive factors to consider. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. While we won’t completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 3 risks we have identified for CPI Computer Peripherals International.

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.

Tags: #CPI #Computer #Peripherals #International #ATHCPI #Stock039s #Sliding #Fundamentals #Decent #Market #Correct #Share #Price #Future #Simply #Wall

Leave a Comment