Falling Stocks and Solid Grounds: Is the Market Wrong About Crypto Blockchain Industries (EPA: ALCBI )?

With the stock down 39% in the past three months, it’s easy to overlook Crypto Blockchain Industries (EPA:ALCBI). However, stock prices are usually driven by a company’s long-term financial performance, which in this case looks quite promising. In particular, we will pay attention to Crypto Blockchain Industries’ ROE today.

Return on equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it is a profitability ratio that measures the return on the capital contributed by the company’s shareholders.

See our latest analysis for Crypto Blockchain Industries

How to calculate return on equity?

The formula for return on equity is:

Return on equity = Net profit (from continuing operations) ÷ Equity

So, based on the formula above, the ROE for Crypto Blockchain Industries is:

18% = €3.1m ÷ €17m (Based on the last twelve months to September 2022).

The “return” is the annual profit. So this means that for every €1 of the shareholder’s investment, the company generates a profit of €0.18.

What is the relationship between ROE and revenue growth?

We have already established that ROE serves as an effective profit-generating measure of a company’s future earnings. Depending on how much of these profits the company reinvests or “retains,” and how efficiently it does so, we can then assess a company’s earnings growth potential. Assuming all else remains the same, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that do not necessarily carry these characteristics.

Crypto Blockchain Industries’ revenue growth and 18% return

For starters, Crypto Blockchain Industries appears to have a respectable ROE. And by comparing with the industry, we found that the average return on the industry is equal to 16%. This likely explains Crypto Blockchain Industry’s significant 63% net revenue growth over the past five years among other factors. However, there may also be other drivers behind this growth. For example, the company has a low payout ratio or is managed efficiently.

As a next step, we compared Crypto Blockchain Industries’ net revenue growth to the industry and happily found that the growth the company is seeing is higher than the average industry growth of 19%.

Earnings growth is an important metric to consider when valuing a stock. What investors must decide next is whether the expected earnings growth, or lack thereof, is already built into the share price. Doing so will help them determine whether the stock’s future looks promising or ominous. Is Crypto Blockchain Industries fairly valued compared to other companies? These 3 valuation measures can help you decide.

Does Crypto Blockchain Industries Reinvest Profits Effectively?

Given that Crypto Blockchain Industries does not pay any dividends to its shareholders, we conclude that the company has reinvested all of its profits to grow the business.

Summary

Overall, we are quite happy with Crypto Blockchain Industry’s performance. In particular, it is great to see that the company invests heavily in the business, and together with a high return, this has resulted in a significant growth in earnings. If the company continues to grow earnings as it has, it could have a positive impact on the stock price given how earnings per share affect long-term stock prices. Remember that the price of a share also depends on the perceived risk. Therefore, investors must stay informed about the risks involved before investing in a company. To know the 2 risks we have identified for Crypto Blockchain Industries, visit our risk dashboard for free.

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This article by Simply Wall St is general. We provide commentary based on historical data and analyst forecasts only using an objective methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the shares mentioned.