Celebrus Technologies plc (LON:CLBS) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

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

Thu, Jan 9, 2025, 4:22 AM 4 min read

It is hard to get excited after looking at Celebrus Technologies' (LON:CLBS) recent performance, when its stock has declined 13% over the past month. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Celebrus 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Celebrus Technologies

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Celebrus Technologies is:

11% = UK£4.1m ÷ UK£37m (Based on the trailing twelve months to September 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each £1 of shareholders' capital it has, the company made £0.11 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Celebrus Technologies' Earnings Growth And 11% ROE

To begin with, Celebrus Technologies seems to have a respectable ROE. Even so, when compared with the average industry ROE of 14%, we aren't very excited. Additionally, the flat earnings seen by Celebrus Technologies over the past five years doesn't paint a very bright picture. Bear in mind, the company does have a respectable level of ROE. It is just that the industry ROE is higher. Therefore, the flat earnings growth could be the result of other factors. These include low earnings retention or poor capital allocation.

Next, on comparing with the industry net income growth, we found that Celebrus Technologies' reported growth was lower than the industry growth of 4.2% over the last few years, which is not something we like to see.

past-earnings-growth — AIM:CLBS Past Earnings Growth January 9th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is CLBS worth today? The intrinsic value infographic in our free research report helps visualize whether CLBS is currently mispriced by the market.

Is Celebrus Technologies Making Efficient Use Of Its Profits?

In spite of a normal three-year median payout ratio of 42% (or a retention ratio of 58%), Celebrus Technologies hasn't seen much growth in its earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

In addition, Celebrus Technologies has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 18% over the next three years. The fact that the company's ROE is expected to rise to 15% over the same period is explained by the drop in the payout ratio.

Conclusion

Overall, we feel that Celebrus Technologies certainly does have some positive factors to consider. However, while the company does have a decent ROE and a high profit retention, its earnings growth number is quite disappointing. This suggests that there might be some external threat to the business, that's hampering growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.