Grupo Carso, S.A.B. de C.V.'s (BMV:GCARSOA1) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?
With its stock down 7.6% over the past month, it is easy to disregard Grupo Carso. de (BMV:GCARSOA1). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Grupo Carso. de's ROE in this article.
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.
How Is ROE Calculated?
ROE 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 Grupo Carso. de is:
7.0% = Mex$12b ÷ Mex$164b (Based on the trailing twelve months to September 2025).
The 'return' is the yearly profit. One way to conceptualize this is that for each MX$1 of shareholders' capital it has, the company made MX$0.07 in profit.
View our latest analysis for Grupo Carso. de
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Grupo Carso. de's Earnings Growth And 7.0% ROE
It is hard to argue that Grupo Carso. de's ROE is much good in and of itself. Further, we noted that the company's ROE is similar to the industry average of 7.9%. So we are actually pleased to see that Grupo Carso. de's net income grew at an acceptable rate of 9.4% over the last five years. Considering the low ROE, it is quite possible that there might also be some other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Grupo Carso. de's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 1.9%.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Grupo Carso. de is trading on a high P/E or a low P/E, relative to its industry.
Is Grupo Carso. de Efficiently Re-investing Its Profits?
Grupo Carso. de's three-year median payout ratio to shareholders is 16% (implying that it retains 84% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
Besides, Grupo Carso. de has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 83% over the next three years.
Conclusion
Overall, we feel that Grupo Carso. de 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 2 risks we have identified for Grupo Carso. de.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.