Is Alexanderwerk Aktiengesellschaft's (FRA:ALXA) Recent Performance Tethered To Its Attractive Financial Prospects?

Most readers would already know that Alexanderwerk's (FRA:ALXA) stock increased by 2.9% over the past week. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Alexanderwerk's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Alexanderwerk

How Is ROE Calculated?

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 Alexanderwerk is:

33% = €7.5m ÷ €23m (Based on the trailing twelve months to June 2023).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.33 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Alexanderwerk's Earnings Growth And 33% ROE

To begin with, Alexanderwerk has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 14% which is quite remarkable. Probably as a result of this, Alexanderwerk was able to see a decent net income growth of 11% over the last five years.

We then performed a comparison between Alexanderwerk's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 11% in the same 5-year period.

DB:ALXA Past Earnings Growth January 14th 2024

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Alexanderwerk fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Alexanderwerk Efficiently Re-investing Its Profits?

While Alexanderwerk has a three-year median payout ratio of 59% (which means it retains 41% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Besides, Alexanderwerk has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

In total, we are pretty happy with Alexanderwerk's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Alexanderwerk's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.