TAJGVK Hotels & Resorts Limited (NSE:TAJGVK) Stock Soars, But Financial Data Seems Inconsistent: Will the Uptrend Continue?

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TAJGVK Hotels & Resorts (NSE: TAJGVK) has had a strong run in the stock market, with its stock rising 25% in the past three months. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In particular, we will pay attention to the ROE of TAJGVK Hotels & Resorts today.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.

See our latest review for TAJGVK Hotels & Resorts

How to calculate return on equity?

Return on equity can be calculated using the formula:

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

So, based on the above formula, the ROE for TAJGVK Hotels & Resorts is:

2.5% = ₹88 million ÷ ₹3.5 billion (based on the last twelve months to December 2021).

The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every ₹1 of share capital it has, the company has made a profit of ₹0.02.

What does ROE have to do with earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s 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.

TAJGVK Hotels & Resorts profit growth and ROE of 2.5%

It is clear that the ROE of TAJGVK Hotels & Resorts is rather weak. Not only that, even compared to the industry average of 6.4%, the company’s ROE is quite unremarkable. Therefore, it may not be wrong to say that the 29% drop in net income over five years that TAJGVK Hotels & Resorts saw was possibly the result of lower ROE. We believe there could also be other aspects that negatively influence the company’s earnings outlook. Such as – low income retention or poor capital allocation.

Then, when we compared with the industry, which cut its profits at a rate of 15% over the same period, we still found that the performance of TAJGVK Hotels & Resorts was quite bleak, as the company cut its profits faster than the industry.

NSEI:TAJGVK Past Earnings Growth April 2, 2022

Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the stock is set for a bright or bleak future. If you’re wondering about the valuation of TAJGVK Hotels & Resorts, check out this indicator of its price/earnings ratio, relative to its sector.

Does TAJGVK Hotels & Resorts use its profits efficiently?

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.

Conclusion

Overall, we believe that the performance displayed by TAJGVK Hotels & Resorts is subject to many interpretations. Although the company has a high reinvestment rate, the low ROE means that all this reinvestment does not benefit its investors and, moreover, it has a negative impact on earnings growth. In conclusion, we would proceed with caution with this business and one way to do that would be to review the risk profile of the business. To know the 2 risks we have identified for TAJGVK Hotels & Resorts, visit our risk dashboard for free.

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.

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