Declining Stock and Solid Fundamentals: Is The Market Wrong About DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen (ETR:DAM)?
It is hard to get excited after looking at DATA MODUL Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) recent performance, when its stock has declined 14% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen
How To Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for DATA MODUL Produktion und Vertrieb von elektronischen Systemen is:
13% = €19m ÷ €138m (Based on the trailing twelve months to June 2023).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.13 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
A Side By Side comparison of DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Earnings Growth And 13% ROE
At first glance, DATA MODUL Produktion und Vertrieb von elektronischen Systemen seems to have a decent ROE. Especially when compared to the industry average of 8.3% the company's ROE looks pretty impressive. This certainly adds some context to DATA MODUL Produktion und Vertrieb von elektronischen Systemen's decent 8.7% net income growth seen over the past five years.
We then compared DATA MODUL Produktion und Vertrieb von elektronischen Systemen's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 3.1% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is DATA MODUL Produktion und Vertrieb von elektronischen Systemen fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is DATA MODUL Produktion und Vertrieb von elektronischen Systemen Using Its Retained Earnings Effectively?
DATA MODUL Produktion und Vertrieb von elektronischen Systemen has a low three-year median payout ratio of 5.2%, meaning that the company retains the remaining 95% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.
Besides, DATA MODUL Produktion und Vertrieb von elektronischen Systemen has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 2.0% over the next three years. Despite the lower expected payout ratio, the company's ROE is not expected to change by much.
Summary
Overall, we are quite pleased with DATA MODUL Produktion und Vertrieb von elektronischen Systemen's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
