Yahoo Finance Is M.P. Evans Group PLC's (LON:MPE) Recent Performance Tethered To Its Attractive Financial Prospects?
M.P. Evans Group's (LON:MPE) stock is up by 4.9% over the past three months. 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. In this article, we decided to focus on M.P. Evans Group's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for M.P. Evans Group
How To Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for M.P. Evans Group is:
10% = US$48m ÷ US$480m (Based on the trailing twelve months to December 2023).
The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each £1 of shareholders' capital it has, the company made £0.10 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. 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.
M.P. Evans Group's Earnings Growth And 10% ROE
To begin with, M.P. Evans Group seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 7.8%. Probably as a result of this, M.P. Evans Group was able to see an impressive net income growth of 52% over the last five years. However, there could also be other causes behind this growth. Such as - high earnings retention or an efficient management in place.
Given that the industry shrunk its earnings at a rate of 2.4% over the last few years, the net income growth of the company is quite impressive.
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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about M.P. Evans Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is M.P. Evans Group Efficiently Re-investing Its Profits?
The three-year median payout ratio for M.P. Evans Group is 38%, which is moderately low. The company is retaining the remaining 62%. By the looks of it, the dividend is well covered and M.P. Evans Group is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Moreover, M.P. Evans Group is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 50% over the next three years. Regardless, the future ROE for M.P. Evans Group is speculated to rise to 12% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.
Summary
On the whole, we feel that M.P. Evans Group's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's 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 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.
