The JOST Werke (ETR:JST) share price has increased by 7.1% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. In this article, we decided to focus on JOST Werke's ROE.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. In other words, ROE shows the return that each dollar of a shareholder's investment generates.
Check out our latest analysis for JOST Werke.
How do I calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, JOST Werke's ROE is:
14% = €52 million ÷ €382 million (based on the trailing twelve months to December 2023).
“Return” refers to a company's earnings over the past year. Another way to think of it is that for every 1 euro worth of stock, the company allowed him to earn a profit of 0.14 euros.
What relationship does ROE have with profit growth?
So far, we have learned that ROE is a measure of a company's profitability. Now we need to evaluate how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company's 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.
A side-by-side comparison of JOST Werke's earnings growth and ROE of 14%.
First, JOST Werke's ROE looks acceptable. Furthermore, the company's ROE is in line with the industry average of 12%. This probably goes some way to explaining other factors behind JOST Werke's modest 14% growth over the past five years.
As a next step, we compared JOST Werke's net income growth with its industry and found that the company has a similar growth rate when compared to the industry average growth rate of 14% over the same period.
Earnings growth is a big factor in stock valuation. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). Doing so will help you determine whether a stock's future is promising or ominous. One good indicator of expected earnings growth is the P/E ratio, which determines the price the market is willing to pay for a stock based on its earnings outlook. So you might want to check whether JOST Werke is trading on a higher or lower P/E relative to its industry.
Does JOST Werke reinvest profits effectively?
JOST Werke's median three-year payout ratio is 34%, which means it retains the remaining 66% of its profits. This suggests that the dividend is well covered, and given the company's healthy growth, it appears that management is reinvesting earnings efficiently.
Furthermore, JOST Werke is determined to continue sharing its profits with shareholders, as can be inferred from its long history of dividend payments over six years. Based on the latest analyst forecasts, we find that the company's future dividend payout ratio over the next three years is expected to remain stable at 29%. Therefore, according to the prediction, JOST Werke's future ROE will be 15%, which will also be similar to his current ROE.
conclusion
Overall, I feel that JOST Werke's performance was very good. Specifically, we like that the company reinvests a huge amount of its profits at a high rate of return. Of course, this significantly increased the company's revenue. According to the latest industry analyst forecasts, the company is expected to maintain its current growth rate. 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 based on historical data and analyst forecasts using only unbiased methodologies, 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.
