Yahoo Finance Declining Stock and Decent Financials: Is The Market Wrong About Schweiter Technologies AG (VTX:SWTQ)?
With its stock down 7.2% over the past three months, it is easy to disregard Schweiter Technologies (VTX:SWTQ). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Schweiter Technologies' ROE.
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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
View our latest analysis for Schweiter Technologies
How To Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Schweiter Technologies is:
8.7% = CHF66m ÷ CHF764m (Based on the trailing twelve months to June 2022).
The 'return' is the profit over the last twelve months. So, this means that for every CHF1 of its shareholder's investments, the company generates a profit of CHF0.09.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
A Side By Side comparison of Schweiter Technologies' Earnings Growth And 8.7% ROE
To begin with, Schweiter Technologies seems to have a respectable ROE. Even so, when compared with the average industry ROE of 24%, we aren't very excited. Schweiter Technologies was still able to see a decent net income growth of 6.6% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. Such as - high earnings retention or an efficient management in place. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this also does lend some color to the fairly high earnings growth seen by the company.
As a next step, we compared Schweiter Technologies' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 6.6% in the same period.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. What is SWTQ worth today? The intrinsic value infographic in our free research report helps visualize whether SWTQ is currently mispriced by the market.
Is Schweiter Technologies Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 76% (or a retention ratio of 24%) for Schweiter Technologies suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Additionally, Schweiter Technologies has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 82%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 8.7%.
Conclusion
Overall, we feel that Schweiter Technologies certainly does have some positive factors to consider. Namely, its significant earnings growth, to which its moderate rate of return likely contributed. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
