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Aquila Services Group plc's (LON:AQSG) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Added 10-25-20 04:04:02am EST - “Aquila Services Group (LON:AQSG) has had a rough three months with its share price down 5.5%. However, stock prices...” - News.yahoo.com

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Posted By TheNewsCommenter: From News.yahoo.com: “Aquila Services Group plc's (LON:AQSG) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?”. Below is an excerpt from the article.

Aquila Services Group (LON:AQSG) has had a rough three months with its share price down 5.5%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Aquila Services Group's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each £1 of shareholders' capital it has, the company made £0.02 in profit.

So far, we've learned that ROE is a measure of a company's profitability. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

It is quite clear that Aquila Services Group's ROE is rather low. Not just that, even compared to the industry average of 14%, the company's ROE is entirely unremarkable. In spite of this, Aquila Services Group was able to grow its net income considerably, at a rate of 57% in the last five years. We reckon that there could be other factors at play here. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

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