Most readers would already be aware that SES-imagotag Société Anonyme’s (EPA:SESL) stock increased significantly by 19% over the past month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to SES-imagotag Société Anonyme’s ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
Check out our latest analysis for SES-imagotag Société Anonyme
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 SES-imagotag Société Anonyme is:
3.1% = €6.0m ÷ €193m (Based on the trailing twelve months to June 2022).
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 €0.03 in profit.
Why Is ROE Important For Earnings Growth?
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 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.
SES-imagotag Société Anonyme’s Earnings Growth And 3.1% ROE
On the face of it, SES-imagotag Société Anonyme’s ROE is not much to talk about. We then compared the company’s ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 6.8%. In spite of this, SES-imagotag Société Anonyme was able to grow its net income considerably, at a rate of 39% in the last five years. Therefore, there could be other reasons behind this growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that SES-imagotag Société Anonyme’s growth is quite high when compared to the industry average growth of 26% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. 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 SES-imagotag Société Anonyme fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is SES-imagotag Société Anonyme Making Efficient Use Of Its Profits?
SES-imagotag Société Anonyme doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.
Summary
On the whole, we do feel that SES-imagotag Société Anonyme has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Valuation is complex, but we’re helping make it simple.
Find out whether SES-imagotag Société Anonyme is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
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