Simonds Group Limited's (ASX:SIO) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

editorial-team@simplywallst.com (Simply Wall St)

Tue, May 13, 2025, 6:21 PM 3 min read

With its banal down 21% implicit the past 3 months, it is casual to disregard Simonds Group (ASX:SIO). However, the company's fundamentals look beauteous decent, and semipermanent financials are usually aligned with aboriginal marketplace terms movements. Specifically, we decided to survey Simonds Group's ROE successful this article.

Return connected equity oregon ROE is an important origin to beryllium considered by a shareholder due to the fact that it tells them however efficaciously their superior is being reinvested. In short, ROE shows the nett each dollar generates with respect to its shareholder investments.

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The formula for ROE is:

Return connected Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based connected the supra formula, the ROE for Simonds Group is:

16% = AU$3.3m ÷ AU$20m (Based connected the trailing 12 months to December 2024).

The 'return' refers to a company's net implicit the past year. So, this means that for each A$1 of its shareholder's investments, the institution generates a nett of A$0.16.

View our latest investigation for Simonds Group

So far, we've learned that ROE is simply a measurement of a company's profitability. Based connected however overmuch of its profits the institution chooses to reinvest oregon "retain", we are past capable to measure a company's aboriginal quality to make profits. Generally speaking, different things being equal, firms with a precocious instrumentality connected equity and nett retention, person a higher maturation complaint than firms that don’t stock these attributes.

To commencement with, Simonds Group's ROE looks acceptable. On comparing with the mean manufacture ROE of 14% the company's ROE looks beauteous remarkable. For this reason, Simonds Group's 5 twelvemonth nett income diminution of 37% raises the question arsenic to wherefore the precocious ROE didn't construe into net growth. We reckon that determination could beryllium immoderate different factors astatine play present that are preventing the company's growth. Such as, the institution pays retired a immense information of its net arsenic dividends, oregon is faced with competitory pressures.

Next, erstwhile we compared with the industry, which has shrunk its net astatine a complaint of 8.3% successful the aforesaid 5-year period, we inactive recovered Simonds Group's show to beryllium rather bleak, due to the fact that the institution has been shrinking its net faster than the industry.

Earnings maturation is simply a immense origin successful banal valuation. The capitalist should effort to found if the expected maturation oregon diminution successful earnings, whichever the lawsuit whitethorn be, is priced in. By doing so, they volition person an thought if the banal is headed into wide bluish waters oregon if swampy waters await. If you're wondering astir Simonds Group's's valuation, cheque retired this gauge of its price-to-earnings ratio, arsenic compared to its industry.