It’s hard to get excited after looking at the recent performance of Addnode Group (STO: ANOD B), as its stock has fallen 11% in the past week. But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. In this article, we have decided to focus on Addnode Group ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
See our latest analysis for Addnode Group
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Addnode Group is:
12% = kr198m kr1.7b (based on the last twelve months up to September 2021).
The “return” is the annual profit. This means that for every SEK 1 value of equity, the company generated SEK 0.12 in profit.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the company is reinvesting or “withholding” for future growth, which then gives us an idea of the growth potential of the company. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
Addnode Group profit growth and 12% ROE
For starters, Addnode Group’s ROE seems acceptable. Even so, compared to the industry average ROE of 19%, we’re not very excited. However, the moderate 17% net profit growth observed by Addnode Group over the past five years is definitely positive. We think there might be other factors at play here. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio. Keep in mind that the company has a respectable level of ROE. It’s just that the industry’s ROE is higher. So it also provides some context for the profit growth observed by the company.
Then comparing with the industry net income growth, we found that the growth of Addnode Group is quite high compared to the industry average growth of 9.0% over the same period, which is great to see.
Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. If you’re wondering about Addnode Group’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is Addnode Group Efficiently Using Its Profits?
The high three-year median payout rate of 52% (or a retention rate of 48%) for Addnode Group suggests that the growth of the company has not been really hampered despite the return of most of its revenue to its shareholders.
In addition, Addnode Group is determined to continue to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years. After studying the latest consensus data from analysts, we found that the company’s future payout ratio is expected to drop to 39% over the next three years.
Overall, we think Addnode Group has some positive attributes. Specifically, its respectable ROE which has probably led to considerable growth in earnings. Still, the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. That said, looking at current analysts’ estimates, we found that the company’s earnings are expected to accelerate. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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