Does Fielmann Aktiengesellschaft’s (ETR-FIE) impressive stock performance have anything to do with its fundamentals?

Fielmann’s stock has seen a remarkable run on the sharemarket, rising by 11% in the last three months. We all know that fundamentals can guide market price movements in the long-term. Therefore, we decided to examine the key financial indicators of the company today to see if they could have any influence on recent price movements. We decided to examine Fielmann’s ROE is in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. It measures profitability in relation to shareholder equity.

View our latest analysis for Fielmann

How can you calculate the return on equity

This formula can be used for calculating the return on equity

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

Based on the above formula, Fielmann’s ROE is:

14% = €118m ÷ €848m (Based on the trailing twelve months to September 2022).

The company’s earnings for the past year is called its “return”. One way to conceptualize this is that for each €1 of shareholders’ capital it has, the company made €0.14 in profit.

What Does ROE Have to Do with Earnings Growth

So far, ROE has been used to measure how efficient a company’s profits are being generated. We can then assess a company’s future potential to generate profits by analyzing how much of its profits it chooses to “retain” or reinvest. 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.

Fielmann Earnings Growth and 14% ROE

Fielmann has a respectable ROE. Comparing the industry ROE, we found that it is 14%. Fielmann’s net income drop of 6.9% over five years raises questions about why the ROE was not sufficient to drive growth. There could be other reasons for this. One example is that the company pays large dividends, or is subject to competitive pressures.

We compared Fielmann’s performance to the industry’s and were worried when we discovered that the company had lost earnings while the industry had grown its earnings by 23% over the same period.

To a large extent, the earnings growth of a company is what determines whether it can be valued. Investors should determine if earnings growth is expected or not. This will help them decide if the stock has a bright future or not. Are Fielmann’s shares fairly valued in comparison to other companies? These 3 valuation measures might help you decide.

Fielmann is efficient in reinvesting its profits

Fielmann’s falling earnings are not surprising considering how much of its profits are being spent on dividends. This is evident by the company’s 3 year median payout ratio of 89% or a retention ratio 11%. The business has only a small amount of capital that it can reinvest, which is a vicious cycle that won’t be beneficial for the company long-term. Our website outlines the risks that Fielmann has identified. risks dashboard Get it free on our platform here.

Fielmann also paid dividends for at least ten consecutive years. This shows that even though it may not bring in any earnings growth, the company’s management is determined and will continue to pay dividends. The company’s future payout ratio over the next three year is estimated to be around 91%, according to the latest data from our analysts. Forecasts predict that Fielmann’s future ROE will be approximately 15%. This is, again, very similar to the ROE currently.

Summary

Fielmann does have some positive aspects to his business. The company has a very high ROE but its earnings growth rate is disappointing. This is due to the fact that the company reinvests only small amounts of its profits and pays dividends the rest. We did however find that the company’s expected earnings growth rate will be significantly higher based on current analyst estimates. Do these analysts base their expectations on industry trends or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.

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This article is by Simply Wall St. It is general in nature. We only provide commentary on historical data and analyst projections. Our articles are not meant to be considered financial advice. It is not a recommendation not to buy or sell any stocks and it doesn’t take into account your objectives or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Our analysis may not take into account the most recent price-sensitive company announcements and qualitative material. Simply Wall St does not hold any position in the stocks mentioned.

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