It’s hard to get excited after watching the recent performance of Ackermans & Van Haaren (EBR:ACKB), as its stock is down 13% in the past three months. But if you pay close attention, you might find that its leading financial indicators look pretty decent, which could mean the stock could potentially rise in the long run as markets generally reward more resilient long-term fundamentals. In this article, we decided to focus on the ROE of Ackermans & Van Haaren.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
Check out our latest analysis for Ackermans & Van Haaren
How to calculate return on equity?
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 Ackermans & Van Haaren is:
9.8% = €512 million ÷ €5.2 billion (based on the last twelve months until December 2021).
The “yield” is the profit of the last twelve months. Another way to think about this is that for every €1 of equity, the company was able to make a profit of €0.10.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Ackermans & Van Haaren earnings growth and ROE of 9.8%
For starters, Ackermans & Van Haaren’s ROE looks acceptable. Still, the fact that the company’s ROE is below the industry average of 13% tempers our expectations. After further research, we found that Ackermans & Van Haaren’s net income growth of 4.9% over the past five years is quite low. Keep in mind that the company has a respectable level of ROE. It’s just that the industry’s ROE is higher. So there could be other factors keeping earnings growth low. For example, the company pays a large part of its profits in the form of dividends or faces competitive pressures.
We then performed a comparison of Ackermans & Van Haaren’s net income growth with the industry, which revealed that the company’s growth is similar to the average industry growth of 4.7% over the of the same period.
Earnings growth is an important factor in stock valuation. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. Is Ackermans & Van Haaren correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Ackermans & Van Haaren use its profits efficiently?
A low three-year median payout ratio of 23% (implying the company retains the remaining 77% of its revenue) suggests that Ackermans & Van Haaren retains most of its profits. However, the low revenue growth figure does not reflect this fact. Therefore, there could be other reasons for the lack in this regard. For example, the business might be in decline.
Furthermore, Ackermans & Van Haaren has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of company growth. the company. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to remain stable at 27%. As a result, Ackermans & Van Haaren’s ROE is not expected to change much either, which we have inferred from analysts’ estimate of 10% for future ROE.
All in all, it seems that Ackermans & Van Haaren has some positive aspects to its business. Specifically, we like that the company reinvests a large portion of its profits at a respectable rate of return. This of course led the company to see good growth in profits. The latest forecasts from industry analysts show that the company should maintain its current growth rate. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.