Sabre Insurance Group plc's (LON:SBRE) Stock Going Strong But Fundamentals Look Weak: What Implications Could This Have On The Stock?
In This Article:
Most readers would already be aware that Sabre Insurance Group's (LON:SBRE) stock increased significantly by 16% over the past three months. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimately dictates market outcomes. In this article, we decided to focus on Sabre Insurance Group's ROE.
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. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Sabre Insurance Group
How To 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 Sabre Insurance Group is:
3.1% = UK￡7.2m ÷ UK￡231m (Based on the trailing twelve months to December 2023).
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.
What Is The Relationship Between ROE And Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.
Sabre Insurance Group's Earnings Growth And 3.1% ROE
It is hard to argue that Sabre Insurance Group's ROE is much good in and of itself. Even when compared to the industry average of 20%, the ROE figure is pretty disappointing. Given the circumstances, the significant decline in net income by 30% seen by Sabre Insurance Group over the last five years is not surprising. However, there could also be other factors causing the earnings to decline. For instance, the company has a very high payout ratio, or is faced with competitive pressures.
As a next step, we compared Sabre Insurance Group's performance with the industry and found thatSabre Insurance Group's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 8.3% in the same period, which is a slower than the company.
