Yahoo Finance Is Koninklijke Heijmans N.V.'s (AMS:HEIJM) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Koninklijke Heijmans' (AMS:HEIJM) stock is up by a considerable 39% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Koninklijke Heijmans' ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Koninklijke Heijmans
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Koninklijke Heijmans is:
16% = €60m ÷ €384m (Based on the trailing twelve months to December 2023).
The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.16 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Koninklijke Heijmans' Earnings Growth And 16% ROE
To start with, Koninklijke Heijmans' ROE looks acceptable. Further, the company's ROE is similar to the industry average of 14%. Consequently, this likely laid the ground for the decent growth of 19% seen over the past five years by Koninklijke Heijmans.
We then performed a comparison between Koninklijke Heijmans' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 18% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for HEIJM? You can find out in our latest intrinsic value infographic research report
Is Koninklijke Heijmans Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 39% (implying that the company retains 61% of its profits), it seems that Koninklijke Heijmans is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
Moreover, Koninklijke Heijmans is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 40%. Accordingly, forecasts suggest that Koninklijke Heijmans' future ROE will be 17% which is again, similar to the current ROE.
Summary
In total, we are pretty happy with Koninklijke Heijmans' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
