Is Korado-Bulgaria AD's (BUL:KBG) Stock On A Downtrend As A Result Of Its Poor Financials?

With its stock down 50% over the past three months, it is easy to disregard Korado-Bulgaria AD (BUL:KBG). We decided to study the company's financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Specifically, we decided to study Korado-Bulgaria AD's ROE in this article.

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.

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How To Calculate Return On Equity?

ROE can be calculated by using the formula:

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

So, based on the above formula, the ROE for Korado-Bulgaria AD is:

7.2% = лв1.7m ÷ лв24m (Based on the trailing twelve months to September 2025).

The 'return' is the profit over the last twelve months. That means that for every BGN1 worth of shareholders' equity, the company generated BGN0.07 in profit.

Check out our latest analysis for Korado-Bulgaria AD

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Korado-Bulgaria AD's Earnings Growth And 7.2% ROE

On the face of it, Korado-Bulgaria AD's ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 9.9% either. Therefore, it might not be wrong to say that the five year net income decline of 16% seen by Korado-Bulgaria AD was probably the result of it having a lower ROE. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. Such as - low earnings retention or poor allocation of capital.

So, as a next step, we compared Korado-Bulgaria AD's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 0.6% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Korado-Bulgaria AD fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Korado-Bulgaria AD Using Its Retained Earnings Effectively?

With a high three-year median payout ratio of 61% (implying that 39% of the profits are retained), most of Korado-Bulgaria AD's profits are being paid to shareholders, which explains the company's shrinking earnings. With only very little left to reinvest into the business, growth in earnings is far from likely. Our risks dashboard should have the 5 risks we have identified for Korado-Bulgaria AD.

In addition, Korado-Bulgaria AD 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.

Summary

In total, we would have a hard think before deciding on any investment action concerning Korado-Bulgaria AD. The company has seen a lack of earnings growth as a result of retaining very little profits and whatever little it does retain, is being reinvested at a very low rate of return. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of Korado-Bulgaria AD's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.