Is Minerva Insurance Company Public Ltd’s (CSE:MINE) Recent Stock Performance Influenced By Its Fundamentals In Any Way? – Simply Wall St

Most readers would already be aware that Minerva Insurance Company’s (CSE:MINE) stock increased significantly by 86% over the past three months. Given that stock prices are usually aligned with a company’s financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Minerva Insurance Company’s ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Minerva Insurance Company

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Minerva Insurance Company is:

8.1% = €580k ÷ €7.2m (Based on the trailing twelve months to June 2020).

The ‘return’ is the profit over the last twelve months. That means that for every €1 worth of shareholders’ equity, the company generated €0.08 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

Minerva Insurance Company’s Earnings Growth And 8.1% ROE

When you first look at it, Minerva Insurance Company’s ROE doesn’t look that attractive. However, given that the company’s ROE is similar to the average industry ROE of 8.8%, we may spare it some thought. Looking at Minerva Insurance Company’s exceptional 26% five-year net income growth in particular, we are definitely impressed. Given the slightly low ROE, it is likely that there could be some other aspects that are driving 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.

As a next step, we compared Minerva Insurance Company’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 6.2%.

past-earnings-growth

CSE:MINE Past Earnings Growth March 25th 2021

Earnings growth is an important metric to consider when valuing a stock. 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 Minerva Insurance Company fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Minerva Insurance Company Using Its Retained Earnings Effectively?

Summary

On the whole, we do feel that Minerva Insurance Company has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. 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. You can see the 4 risks we have identified for Minerva Insurance Company by visiting our risks dashboard for free on our platform here.

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This article by Simply Wall St is general in nature. 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.
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