Does that require a deeper look into the financial outlook?

DEUTZ (ETR:DEZ) has had a great run on the stock market, with its share price increasing by a significant 38% over the past three months. As most people know, fundamentals typically guide market price movements over the long term, so today we’ll take a look at the company’s key financial metrics to see if they play any role in the recent price movement. I decided to judge. In particular, I would like to pay attention to DEUTZ’s ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. In other words, this reveals that the company has been successful in turning shareholder investments into profits.

Check out our latest analysis for DEUTZ.

How is ROE calculated?

of ROE calculation formula teeth:

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

So, based on the above formula, the ROE for DEUTZ is:

14% = €101 million ÷ €738 million (based on the trailing twelve months to September 2023).

“Revenue” is the income a company has earned over the past year. One way he conceptualizes this is that for every €1 of shareholders’ equity, the company made his €0.14 in profit.

What is the relationship between ROE and profit growth rate?

So far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.

DEUTZ’s earnings growth and ROE 14%

First, DEUTZ seems to have a respectable ROE. Even compared to the industry average of 14%, the company’s ROE looks pretty decent. Despite the modest profits, DEUTZ’s net profit growth over his five years was very low, averaging only 3.8%. Therefore, there may be other factors at play that can affect the company’s growth. For example, a company may be paying out a large portion of its earnings as dividends or may be facing competitive pressures.

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As a next step, we compared DEUTZ’s net income growth rate with the industry, and were disappointed to find that the company’s growth rate was lower than the industry average growth rate of 11% over the same period.

The foundations that give a company value have a lot to do with its revenue growth. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. This can help you decide whether to position the stock for a bright or bleak future. Is DEZ fairly valued? This infographic on the company’s intrinsic value contains everything you need to know.

Is DEUTZ reinvesting its profits efficiently?

DEUTZ has a decent three-year median payout ratio of 27% (or a retention rate of 73%), but its earnings growth is negligible. Therefore, there may be other factors at play here that could potentially inhibit growth. For example, businesses are facing some headwinds.

Additionally, DEUTZ has been paying dividends for at least 10 years. This means the company’s management is determined to pay a dividend, even if earnings growth means little. Based on the latest analyst forecasts, we find that the company’s future payout ratio is expected to remain stable at 30% over the next three years. Therefore, the company’s future ROE is not expected to change much, with analysts forecasting it to be 12%.

summary

Overall, we feel DEUTZ certainly has some positive factors to consider. However, given the high ROE and high profit retention rate, we would expect the company to deliver high earnings growth, which is not the case here. This suggests that there may be some external threat to the business that is hindering its growth. That said, the company’s earnings are expected to accelerate, according to the latest industry analyst forecasts. Learn more about the company’s future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.