S
ummit Real Estate Holdings (TLV:SMT) has slipped 4.7 % in the last month, a decline that can easily be dismissed. Investors may have overlooked the company’s uneven financials, allowing negative sentiment to dominate. Yet long‑term fundamentals usually dictate market performance, so a deeper look is warranted.
**Why ROE Matters**
Return on equity (ROE) gauges how effectively management turns shareholders’ capital into profit. It is calculated as:
[
text{ROE} = frac{text{Net profit from continuing operations}}{text{Shareholders’ equity}}
]
For Summit, the trailing‑twelve‑month figures to June 2025 give:
[
text{ROE} = frac{₪227,text{m}}{₪5.3,text{bn}} = 4.3%
]
This means the firm earns ₪0.04 for every ₪1 of equity invested each year.
**ROE vs. Earnings Growth**
ROE reflects profitability, but it also hints at future growth. A higher ROE combined with a strong retention rate usually signals a company that can generate expanding earnings. Summit’s ROE of 4.3 % falls well below the sector average of 8.3 %. Over the past five years, its net income has dropped 32 %, a trend that aligns with the weak ROE. Possible culprits include a high payout ratio and stiff competition.
When comparing earnings growth, Summit’s decline contrasts sharply with the industry’s modest 1.0 % increase over the same period. This disparity suggests the company’s prospects are under pressure.
**Valuation Snapshot**
Investors should assess whether expected earnings changes are already priced in. Summit’s price‑to‑earnings ratio, relative to peers, offers a quick gauge of valuation. A lower P/E may indicate undervaluation, but the weak ROE and shrinking earnings temper enthusiasm.
**Retained Earnings Efficiency**
Summit retains 93 % of its profits (a 7 % payout ratio), yet its earnings are falling. This mismatch raises questions about how retained earnings are deployed. The firm has also paid dividends for nine consecutive years, implying management believes shareholders value steady payouts even amid earnings contraction.
**Bottom Line**
Summit Real Estate Holdings presents a mixed picture. High profit retention is offset by a low ROE that likely constrains earnings growth. Caution is advised, and a careful review of the company’s risk profile is essential before committing capital.
**Tools & Disclaimers**
A new free portfolio companion lets investors track multiple holdings, receive risk alerts, and monitor fair values. This article is informational only, based on historical data and analyst forecasts. It does not constitute investment advice, and Simply Wall St holds no positions in the stocks discussed.
