Yahoo Finance Do Fundamentals Have Any Role To Play In Driving Schroder European Real Estate Investment Trust Plc's (LON:SERE) Stock Up Recently?
Schroder European Real Estate Investment Trust's (LON:SERE) stock is up by 4.1% over the past week. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Schroder European Real Estate Investment Trust's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Schroder European Real Estate Investment Trust
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Schroder European Real Estate Investment Trust is:
3.1% = €6.2m ÷ €200m (Based on the trailing twelve months to September 2021).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every £1 of its shareholder's investments, the company generates a profit of £0.03.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the 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 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.
A Side By Side comparison of Schroder European Real Estate Investment Trust's Earnings Growth And 3.1% ROE
At first glance, Schroder European Real Estate Investment Trust's ROE doesn't look very promising. Next, when compared to the average industry ROE of 8.8%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Schroder European Real Estate Investment Trust was able to grow its net income considerably, at a rate of 25% in the last five years. We reckon that there could be other factors at play here. Such as - high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Schroder European Real Estate Investment Trust's growth is quite high when compared to the industry average growth of 7.5% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Schroder European Real Estate Investment Trust fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Schroder European Real Estate Investment Trust Making Efficient Use Of Its Profits?
Schroder European Real Estate Investment Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 68%, meaning the company retains only 32% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings significantly, as we saw above.
Additionally, Schroder European Real Estate Investment Trust has paid dividends over a period of five years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
In total, it does look like Schroder European Real Estate Investment Trust has some positive aspects to its business. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. 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 Schroder European Real Estate Investment Trust'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.
