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Is BE Semiconductor Industries N.V.'s(AMS:BESI) Recent Stock Performance Tethered To Its Strong Fundamentals?

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Simply Wall St
·4 min read
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BE Semiconductor Industries''s (AMS:BESI) stock is up by a considerable 18% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on BE Semiconductor Industries' ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for BE Semiconductor Industries

How Is ROE Calculated?

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 BE Semiconductor Industries is:

27% = €86m ÷ €317m (Based on the trailing twelve months to March 2020).

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 €0.27 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

BE Semiconductor Industries' Earnings Growth And 27% ROE

To begin with, BE Semiconductor Industries has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 6.8% which is quite remarkable. This likely paved the way for the modest 12% net income growth seen by BE Semiconductor Industries over the past five years. growth

Next, on comparing BE Semiconductor Industries' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 13% in the same period.

ENXTAM:BESI Past Earnings Growth May 25th 2020
ENXTAM:BESI Past Earnings Growth May 25th 2020

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is BESI fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is BE Semiconductor Industries Making Efficient Use Of Its Profits?

While BE Semiconductor Industries has a three-year median payout ratio of 80% (which means it retains 20% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Besides, BE Semiconductor Industries has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 119% over the next three years. Still, forecasts suggest that BE Semiconductor Industries' future ROE will rise to 51% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.

Summary

Overall, we are quite pleased with BE Semiconductor Industries' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

This article by Simply Wall St is general in nature. 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. Thank you for reading.