Yahoo Finance Is Weakness In ecotel communication ag (ETR:E4C) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?
ecotel communication ag (ETR:E4C) has had a rough three months with its share price down 7.9%. 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 ecotel communication ag's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for ecotel communication ag
How Is ROE Calculated?
ROE 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 ecotel communication ag is:
24% = €5.7m ÷ €24m (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.24 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
ecotel communication ag's Earnings Growth And 24% ROE
Firstly, we acknowledge that ecotel communication ag has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 8.5% also doesn't go unnoticed by us. As a result, ecotel communication ag's exceptional 60% net income growth seen over the past five years, doesn't come as a surprise.
Next, on comparing with the industry net income growth, we found that ecotel communication ag's growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about ecotel communication ag's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is ecotel communication ag Using Its Retained Earnings Effectively?
ecotel communication ag has a three-year median payout ratio of 29% (where it is retaining 71% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and ecotel communication ag is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Moreover, ecotel communication ag is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.
Conclusion
Overall, we are quite pleased with ecotel communication ag's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.