Does The Market Have A Low Tolerance For FDM Group (Holdings) plc's (LON:FDM) Mixed Fundamentals?
In This Article:
FDM Group (Holdings) (LON:FDM) has had a rough three months with its share price down 23%. It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. Particularly, we will be paying attention to FDM Group (Holdings)'s ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
Check out our latest analysis for FDM Group (Holdings)
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for FDM Group (Holdings) is:
53% = UK￡41m ÷ UK￡77m (Based on the trailing twelve months to December 2023).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every ￡1 worth of equity, the company was able to earn ￡0.53 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
FDM Group (Holdings)'s Earnings Growth And 53% ROE
To begin with, FDM Group (Holdings) has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 14% which is quite remarkable. Given the circumstances, we can't help but wonder why FDM Group (Holdings) saw little to no growth in the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
We then compared FDM Group (Holdings)'s net income growth with the industry and found that the average industry growth rate was 16% in the same 5-year period.
