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Is the latest share performance of AlzChem Group AG (ETR:ACT) a reflection of its financial health?
Most readers already know that AlzChem Group (ETR:ACT) shares have increased significantly by 73% over the past three months. Given that the market rewards strong financials over the long term, we wonder if that will be the case in this case. Specifically, we decided to study AlzChem Group ROE in this article.
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 in relation to shareholders’ equity.
Check out our latest analysis for AlzChem Group
How do you calculate return on equity?
O formula for ROE It is:
Return on Equity = Net Profit (from continuing operations) ÷ Equity
Therefore, based on the above formula, AlzChem Group’s ROE is:
22% = €39 million ÷ €179 million (based on the trailing twelve months to March 2024).
The ‘return’ is the revenue the company made in the last year. One way to conceptualize this is that for every 1 euro of shareholder capital it has, the company made 0.22 euros of profit.
What does ROE have to do with earnings growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of its profits the company chooses to reinvest or “retain”, we can then assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have a higher return on equity and higher profit retention are generally those that have a higher growth rate when compared to companies that do not have the same characteristics.
AlzChem Group profit growth and ROE of 22%
Firstly, we recognize that AlzChem Group has a significantly high ROE. Furthermore, the company’s ROE is higher than the industry average of 8.5%, which is quite remarkable. Probably as a result of this, AlzChem Group has managed to see a decent net profit growth of 15% over the last five years.
We then compared AlzChem Group’s net profit growth to that of the industry and are pleased to see that the company’s growth number is higher when compared to the industry which has a growth rate of 11% over the same 5 year period. .
past profit growth
Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This helps them determine whether the stock is poised for a bright or bleak future. How much is the ACT worth today? O intrinsic value infographic in our free research report helps visualize whether ACT is currently mispriced by the market.
The story continues
Is AlzChem Group using its retained earnings effectively?
AlzChem Group has a healthy combination of a moderate three-year median payout ratio of 35% (or a 65% retention ratio) and respectable earnings growth, as we saw above, which means the company has been making use of efficiency of your profits.
Furthermore, AlzChem Group is determined to continue sharing its profits with shareholders, which we infer from its long six-year history of paying dividends. By studying the latest analyst consensus data, we found that the company is expected to continue to pay out approximately 33% of its earnings over the next three years. Consequently, forecasts suggest that AlzChem Group’s future ROE will be 21%, which is again similar to the current ROE.
Conclusion
Overall, we are very satisfied with the performance of the AlzChem Group. Particularly, we like that the company is reinvesting heavily in its business and with a high rate of return. Unsurprisingly, this has led to impressive profit growth. That said, the latest forecasts from industry analysts reveal that the company’s earnings growth is expected to slow. To learn more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts 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 using only 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.