Yahoo Finance Are Strong Financial Prospects The Force That Is Driving The Momentum In Uzin Utz SE's ETR:UZU) Stock?
Uzin Utz's (ETR:UZU) stock is up by a considerable 11% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Uzin Utz'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Uzin Utz
How Do You 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 Uzin Utz is:
8.8% = €23m ÷ €257m (Based on the trailing twelve months to December 2023).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.09 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of Uzin Utz's Earnings Growth And 8.8% ROE
To start with, Uzin Utz's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 8.1%. This certainly adds some context to Uzin Utz's moderate 7.4% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Uzin Utz's reported growth was lower than the industry growth of 13% over the last few years, which is not something we like 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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Uzin Utz's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Uzin Utz Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 32% (implying that the company retains 68% of its profits), it seems that Uzin Utz is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
Besides, Uzin Utz has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its 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 36%. Accordingly, forecasts suggest that Uzin Utz's future ROE will be 7.6% which is again, similar to the current ROE.
Summary
Overall, we are quite pleased with Uzin Utz's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
