Is Kuehne + Nagel International AG’s (VTX:KNIN) Latest Stock Performance A Reflection Of Its Financial Health?

Most readers should already be aware that Kuehne + Nagel International (VTX:KNIN) stock is up a substantial 13% over the past month. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health typically drives market results. In this article we have chosen to focus on the ROE of Kuehne + Nagel International.

Return on Equity, or ROE, is a key metric used to assess how efficiently a company’s management is using the company’s capital. In short, ROE shows the profit each dollar generates in relation to its shareholders’ investments.

Check out our latest analysis for Kuehne + Nagel International

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 above formula, the ROE for Kuehne + Nagel International is:

68% = CHF 2.8 billion ÷ CHF 4.1 billion (Based on the last twelve months to December 2022).

“Return” is the amount earned after tax over the past 12 months. One way to conceptualize this is that for every CHF 1 of shareholder capital, the company makes a profit of CHF 0.68.

What does ROE have to do with earnings growth?

So far we’ve learned that ROE is a measure of a company’s profitability. Depending on how much of these earnings the company reinvests, or “retains,” and how effectively it does so, we can assess a company’s earnings 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 Kuehne + Nagel International earnings growth and 68% ROE

First, we like that Kuehne + Nagel International has an impressive ROE. Additionally, the company’s ROE is higher than the industry average of 20%, which is quite remarkable. So Kuehne + Nagel International’s exceptional net profit growth of 33% over the past five years comes as no surprise.

Next, in comparing Kuehne + Nagel International’s net earnings growth to the industry, we found that the company’s reported growth is similar to the industry average growth rate of 37% over the same period.

Much of the basis for increasing the value of a company is tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in future prospects for KNIN? You can find out in our latest intrinsic value research report in the form of an infographic.

Is Kuehne + Nagel International using its profits efficiently?

Kuehne + Nagel International has a significant three-year median payout ratio of 57%, meaning the company keeps just 43% of its earnings. This means the company has been able to deliver strong earnings growth despite returning most of its profits to shareholders.

Additionally, Kuehne + Nagel International has been paying dividends for at least a decade, meaning the company is pretty serious about sharing its profits with shareholders. If we look at the latest analyst consensus data, we can see that the company’s future payout ratio is expected to grow to 81% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company’s ROE to 32% over the same period.

Diploma

Overall, we consider the performance of Kuehne + Nagel International to be quite good. Most notably, the high ROE that has contributed to the impressive earnings growth. Although the company only reinvests a small portion of its profits, it has still managed to increase its profits enough to be felt. However, reading the latest analyst estimates, we are concerned that while the company has a history of growing earnings, analysts expect earnings to shrink in the future. 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.

Do you have any feedback about this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.

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.