Most readers would already know that Burkhard Compression Holding (VTX:BCHN)'s stock price has increased by a significant 6.3% over the past week. Since the market usually pays for a company's long-term fundamentals, we decided to investigate whether a company's key performance indicators are influencing the market. Specifically, in this article we decided to examine his ROE for Burkhardt Compression Holding.
Return on equity or ROE tests how effectively a company is growing its value and managing investors' money. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis on Burckhardt Compression Retention.
How do you calculate return on equity?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, the ROE for Burkhardt Compression Holding is:
32% = CHF 78 million ÷ CHF 247 million (based on the trailing twelve months to September 2023).
“Revenue” is the income a company has earned over the past year. Another way of thinking is that for every CHF 1 worth of stock, the company allowed him to earn a profit of CHF 0.32.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain”. Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
Burckhardt Compression Holding's earnings growth and ROE 32%
First of all, we like Burckhardt Compression Holding's strong ROE. Furthermore, the company's ROE is high compared to the industry average of 17%, which is quite noteworthy. As a result, the exceptional 22% growth in Burckhardt Compression Holding's net income over the past five years is no surprise.
We then compared Burckhardt Compression Holding's net income growth rate to its industry. The same he is pleased to find that the company's growth rate is high when compared to the industry where in five years he recorded a growth rate of 3.6%.
Earnings growth is a big factor in stock valuation. In any case, investors should seek to ascertain whether expected earnings growth or decline has been factored in. 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 Burckhardt Compression Holding is trading on a higher or lower P/E ratio relative to its industry.
Is Burkhardt Compression Holding using its profits efficiently?
Burkhardt Compression Holding's three-year median payout ratio is 49%, which is reasonably low. The company will hold the remaining 51%. It therefore appears that Burkhardt Compression Holding has delivered impressive growth in earnings (as mentioned above) and reinvested them efficiently in a way that pays well-covered dividends.
Additionally, Burkhardt Compression Holding has been paying dividends for at least 10 years. This shows that the company is committed to sharing profits with its shareholders. After reviewing the latest analyst consensus data, we found that the company is expected to continue paying out around 54% of its profit over the next three years. As a result, Burkhardt Compression Holding's ROE is not expected to change significantly, based on analysts' future ROE expectations of 29%.
summary
Overall, we are very happy with the performance of the Burckhardt Compression Holding. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page 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 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.
