Could The Market Be Wrong About InfoBeans Technologies Limited (NSE:INFOBEAN) Given Its Attractive Financial Prospects? – Simply Wall St
Stock Analysis
With its stock down 12% over the past three months, it is easy to disregard InfoBeans Technologies (NSE:INFOBEAN). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on InfoBeans Technologies' 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.
Check out the opportunities and risks within the IN Software industry.
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 InfoBeans Technologies is:
21% = ₹547m ÷ ₹2.6b (Based on the trailing twelve months to September 2022).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every ₹1 of its shareholder's investments, the company generates a profit of ₹0.21.
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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
To begin with, InfoBeans Technologies seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 14%. This certainly adds some context to InfoBeans Technologies' exceptional 28% net income growth seen over the past five years. However, there could also be other causes 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.
As a next step, we compared InfoBeans Technologies' 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 21%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is InfoBeans Technologies fairly valued compared to other companies? These 3 valuation measures might help you decide.
InfoBeans Technologies has a really low three-year median payout ratio of 5.4%, meaning that it has the remaining 95% left over to reinvest into its business. So it looks like InfoBeans Technologies is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Moreover, InfoBeans Technologies is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend.
On the whole, we feel that InfoBeans Technologies' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Not to forget, share price outcomes are also dependent on the potential risks a company may face. So it is important for investors to be aware of the risks involved in the business. To know the 1 risk we have identified for InfoBeans Technologies visit our risks dashboard for free.
Find out whether InfoBeans Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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.
InfoBeans Technologies Limited designs, builds, and sustains enterprise-grade software solutions in USA, Europe, and Asia.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
Excellent balance sheet with proven track record.
Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.