Yahoo Finance ATOSS Software AG's (ETR:AOF) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
With its stock down 10% over the past month, it is easy to disregard ATOSS Software (ETR:AOF). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Specifically, we decided to study ATOSS Software's ROE in this article.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for ATOSS Software
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 ATOSS Software is:
58% = €36m ÷ €62m (Based on the trailing twelve months to December 2023).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.58 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
ATOSS Software's Earnings Growth And 58% ROE
To begin with, ATOSS Software has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 20% the company's ROE is quite impressive. This probably laid the groundwork for ATOSS Software's moderate 20% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that ATOSS Software's growth is quite high when compared to the industry average growth of 16% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about ATOSS Software's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is ATOSS Software Making Efficient Use Of Its Profits?
The high three-year median payout ratio of 75% (or a retention ratio of 25%) for ATOSS Software suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Additionally, ATOSS Software has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. 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 75%. Accordingly, forecasts suggest that ATOSS Software's future ROE will be 47% which is again, similar to the current ROE.
Conclusion
In total, we are pretty happy with ATOSS Software's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
