Enel Generación Chile S.A.'s (SNSE:ENELGXCH) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Enel Generación Chile's (SNSE:ENELGXCH) stock is up by 9.7% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Enel Generación Chile's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Enel Generación Chile is:

16% = US$437m ÷ US$2.8b (Based on the trailing twelve months to September 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every CLP1 worth of equity, the company was able to earn CLP0.16 in profit.

Check out our latest analysis for Enel Generación Chile

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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Enel Generación Chile's Earnings Growth And 16% ROE

At first glance, Enel Generación Chile seems to have a decent ROE. Especially when compared to the industry average of 5.1% the company's ROE looks pretty impressive. This certainly adds some context to Enel Generación Chile's exceptional 34% net income growth seen over the past five years. We reckon that there could also 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.

Given that the industry shrunk its earnings at a rate of 0.5% over the last few years, the net income growth of the company is quite impressive.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is Enel Generación Chile fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Enel Generación Chile Efficiently Re-investing Its Profits?

Enel Generación Chile's three-year median payout ratio is a pretty moderate 50%, meaning the company retains 50% of its income. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Enel Generación Chile is reinvesting its earnings efficiently.

Besides, Enel Generación Chile has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

In total, we are pretty happy with Enel Generación Chile's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.