Is the share price of Countryside Partnerships PLC (LON:CSP) struggling due to its mixed financials?

With its stock down 24% in the past three months, it’s easy to overlook Countryside Partnerships (LON:CSP). It’s possible that the markets ignored the company’s financial differences and decided to look into the negative sentiment. Stock prices are usually determined by a company’s financial performance over the long term, and so we decided to pay more attention to the company’s financial performance. In particular, we’ll be paying attention to Countryside Partnerships’ ROE today.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In simple terms, it is used to assess the profitability of a company in relation to its equity.

See our latest analysis for rural partnerships

How do you calculate return on equity?

ROE can be calculated using the formula:

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

So, based on the above formula, the ROE for Countryside Partnerships is:

6.5% = £72m ÷ £1.1bn (based on trailing 12 months to September 2021).

The “yield” is the profit of the last twelve months. This therefore means that for every pound invested by its shareholder, the company generates a profit of 0.07 pounds.

What is the relationship between ROE and earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of Countryside Partnerships earnings growth and ROE of 6.5%

At first glance, Countryside Partnerships’ ROE doesn’t have much to say. Then, compared to the industry average ROE of 11%, the company’s ROE leaves us even less excited. Given the circumstances, the significant 15% decline in net income experienced by Countryside Partnerships over the past five years is not surprising. We believe there could be other factors at play here as well. For example, the company has a very high payout rate or faces competitive pressures.

Then, when we compared with the industry, which cut profits at a rate of 7.8% over the same period, we still found Countryside Partnerships’ performance to be quite dismal, as the company has cuts its profits faster than the industry.

Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is Countryside Partnerships correctly valued compared to other companies? These 3 assessment metrics might help you decide.

Does Countryside Partnerships use its profits effectively?

Although the company has paid a portion of its dividend in the past, it currently does not pay any dividend. This implies that potentially all of its profits are reinvested in the business.

Summary

Overall, we have mixed feelings about campaign partnerships. Although the company has a high earnings retention rate, its low rate of return is likely hampering its earnings growth. That being the case, the latest forecasts from industry analysts show that analysts are expecting a huge improvement in the company’s earnings growth rate. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.