Is Andritz AG's (VIE:ANDR) Stock's Recent Performance A Reflection Of Its Financial Health?

Andritz's (VIE:ANDR) stock is up by 8.1% 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. Specifically, we decided to study Andritz'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Andritz

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 Andritz is:

24% = €507m ÷ €2.1b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.24.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Andritz's Earnings Growth And 24% ROE

Firstly, we acknowledge that Andritz has a significantly high ROE. Secondly, even when compared to the industry average of 17% the company's ROE is quite impressive. So, the substantial 28% net income growth seen by Andritz over the past five years isn't overly surprising.

We then compared Andritz's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 12% in the same 5-year period.

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. Is Andritz fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Andritz Making Efficient Use Of Its Profits?

Andritz has a three-year median payout ratio of 47% (where it is retaining 53% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Andritz is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Andritz 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. 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 49%. As a result, Andritz's ROE is not expected to change by much either, which we inferred from the analyst estimate of 21% for future ROE.

Summary

On the whole, we feel that Andritz's performance has been quite good. 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 sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.