Koninklijke BAM Groep (AMS:BAMNB) has been doing well on the stock market, with its share price increasing by a significant 42% 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. Specifically, in this article we decided to study Koninklijke BAM Groep'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. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Koninklijke BAM Groep.
How do I calculate return on equity?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Koninklijke BAM Groep's ROE is:
18% = €153 million ÷ €843 million (based on the trailing twelve months to June 2023).
“Return” is the annual profit. Another way of thinking is that for every 1 euro worth of stock, the company allowed him to earn a profit of 0.18 euros.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE is a measure of a company's profitability. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.
A side-by-side comparison of Koninklijke BAM Groep's earnings growth and ROE of 18%
At first glance, Koninklijke BAM Groep appears to have a decent ROE. Moreover, his ROE for the company is very good compared to the industry average of 15%. Perhaps as a result of this, Koninklijke BAM Groep has been able to grow its net profit by an impressive 45% over the past five years. We think there may be other aspects that are positively impacting the company's earnings growth. Maintaining high profits and efficient management, etc.
We then compared Koninklijke BAM Groep's net income growth to its industry. The same he found that the company's growth rate was high when compared to the industry where in five years he showed a growth rate of 15%.
The foundations that give a company value have a lot to do with its revenue growth. Investors should check whether expected growth or decline in earnings has been factored in in any case. This will help you determine whether the stock's future is bright or bleak. If you're wondering about Koninklijke BAM Groep's's valuation, check out this gauge of its price-to-earnings ratio compared to its industry.
Does Koninklijke BAM Groep reinvest its profits efficiently?
Koninklijke BAM Groep's median three-year dividend payout ratio is lower at 24%, meaning it retains a higher percentage of its profits (76%). This suggests that management is reinvesting most of their profits into growing the business, as the company's growth shows.
Additionally, Koninklijke BAM Groep has been paying dividends for at least 10 years. This shows that the company is committed to sharing profits with shareholders. Looking at the current analyst consensus data, we see that the company's future dividend payout ratio is expected to rise to 51% over the next three years. Therefore, we expect the company's ROE to drop to 12% over the same period given the expected increase in the dividend payout ratio.
conclusion
Overall, I'm very satisfied with the performance of the Koninklijke BAM Groep. 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. Having said that, we looked at current analyst forecasts and found that while the company has grown earnings in the past, we are concerned that analysts expect earnings to shrink in the future. To know more about the latest analyst forecasts 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 using only unbiased methodologies, based on historical data and analyst forecasts, 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.
