Is Oeneo SA’s (EPA:SBT) Latest Stock Performance Being Led By Its Strong Fundamentals?

Most readers already know that Oeneo (EPA:SBT) stock is up 8.3% over the past three months. Given the impressive performance, we decided to examine the company’s key financial indicators, as a company’s long-term fundamentals typically dictate market outcomes. In this article we have chosen to focus on Oeneo’s ROE.

ROE, or return on equity, is a useful tool for assessing how effectively a company is generating returns on the investment received from its shareholders. In other words, it shows the company’s success in turning shareholders’ investments into profits.

Check out our latest analysis for Oeneo

How do you calculate return on equity?

The ROE can be calculated using the following formula:

Return on Equity = Net Income (from continuing operations) ÷ Equity

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

13% = €41M ÷ €325M (based on trailing 12 months to September 2022).

The “return” is the income that the company has made in the last year. One way to conceptualize this is that the company made $0.13 in profit for every $1 in equity it has.

Why is ROE important for earnings growth?

We have already established that ROE serves as an efficient profitable measure of a company’s future profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else being equal, companies that demonstrate both higher return on equity and higher earnings retention tend to be those that exhibit a higher growth rate than companies that do not share the same characteristics.

A head-to-head comparison of Oeneo’s earnings growth and 13% ROE

First of all, Oeneo’s ROE looks acceptable. Even compared to the industry average of 13%, the company’s ROE looks pretty decent. This should explain, among other things, the moderate growth of Oeneo in the last five years by 6.6%.

As a next step, we compared Oeneo’s net income growth to the industry and found that the company has a similar growth figure compared to the industry average growth rate of 7.1% over the same period.

Earnings growth is an important factor in stock valuation. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This allows them to determine if the stock’s future looks bright or ominous. Has the market priced in future prospects for SBT? You can find out in our latest intrinsic value research report in the form of an infographic.

Does Oeneo use its retained earnings effectively?

With a three-year median payout ratio of 39% (meaning the company retains 61% of its earnings), Oeneo appears to be reinvesting efficiently, allowing it to see respectable growth in its earnings and pay a well-covered dividend.

Additionally, Oeneo is committed to continuing to share its profits with shareholders, which we infer from its long dividend history for at least ten years. Our latest analyst data shows that the company’s future payout ratio is expected to increase to 50% over the next three years. Regardless, ROE for the company is not expected to change significantly despite the expected higher payout ratio.

Diploma

Overall, we think the Oeneo’s performance is quite good. In particular, it’s great to see that the company has invested heavily in its business and has resulted in significant earnings growth along with a high rate of return. However, based on the latest analyst estimates, we note that the company’s earnings are likely to gain momentum. To learn more about the company’s future earnings growth projections, take a look free Report on analyst forecasts for the company to learn more.

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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.