Does the impressive stock market performance of SIG Combibloc Group AG (VTX:SIGN) have anything to do with its fundamentals?

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SIG Combibloc Group (VTX:SIGN) has had a strong run in the equity market with a significant 16% rise in its stock over the past month. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. In particular, we will pay close attention to the ROE of the SIG Combibloc Group today.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simpler terms, it measures a company’s profitability relative to equity.

Discover our latest analysis for SIG Combibloc Group

How is ROE calculated?

the return on equity formula East:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, based on the formula above, the ROE of the SIG Combibloc Group is:

7.4% = €172 million ÷ €2.3 billion (based on the last twelve months until December 2021).

“Yield” refers to a company’s earnings over the past year. This therefore means that for every CHF 1 invested by its shareholder, the company generates a profit of CHF 0.07.

What is the relationship between ROE and earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

Side-by-side comparison of SIG Combibloc Group’s 7.4% ROE and profit growth

At first glance, the ROE of the SIG Combibloc group does not look very promising. Then, compared to the industry average ROE of 12%, the company’s ROE leaves us even less excited. Despite this, surprisingly, the SIG Combibloc Group has recorded an exceptional growth of 62% in its net profit over the past five years. Therefore, there could be other reasons behind this growth. For example, the business has a low payout ratio or is efficiently managed.

Next, we compared the growth of the net profit of the SIG Combibloc Group with that of the sector and, fortunately, we found that the growth observed by the company is higher than the average growth of the sector of 7.3%.

SWX:SIGN Past Earnings Growth March 22, 2022

Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. Is SIGN correctly valued? This intrinsic business value infographic has everything you need to know.

Does the SIG Combibloc Group use its retained earnings efficiently?

The SIG Combibloc Group’s large three-year median payout ratio of 90% (where it retains only 10% of its revenue) suggests that the company has been able to achieve strong profit growth despite the return of the most of its income to shareholders.

Additionally, the SIG Combibloc Group has paid out dividends over a three-year period, which means the company is pretty serious about sharing its profits with shareholders. After reviewing the latest analyst consensus data, we found that the company’s future payout ratio is expected to drop to 59% over the next three years. However, the company’s ROE is not expected to change much despite the lower expected payout ratio.

Conclusion

Overall, we believe that the SIG Combibloc Group has positive assets. Namely, its strong earnings growth. We believe, however, that the earnings growth figure could have been even higher had the company reinvested more of its earnings and paid fewer dividends. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.

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.

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