Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft's (VIE:SBO) Stock On An Uptrend: Could Fundamentals Be Driving The Momentum?

Most readers would already be aware that Schoeller-Bleckmann Oilfield Equipment's (VIE:SBO) stock increased significantly by 31% over the past month. As most would know, fundamentals are what usually guide market price movements over the long-term, 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. Specifically, we decided to study Schoeller-Bleckmann Oilfield Equipment's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Schoeller-Bleckmann Oilfield Equipment

How Do You 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 Schoeller-Bleckmann Oilfield Equipment is:

0.9% = €3.0m ÷ €331m (Based on the trailing twelve months to June 2020).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.01.

What Is The Relationship Between ROE And 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. 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.

Schoeller-Bleckmann Oilfield Equipment's Earnings Growth And 0.9% ROE

It is hard to argue that Schoeller-Bleckmann Oilfield Equipment's ROE is much good in and of itself. Even when compared to the industry average of 5.6%, the ROE figure is pretty disappointing. In spite of this, Schoeller-Bleckmann Oilfield Equipment was able to grow its net income considerably, at a rate of 33% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Schoeller-Bleckmann Oilfield Equipment's growth is quite high when compared to the industry average growth of 17% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. 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. Is SBO fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Schoeller-Bleckmann Oilfield Equipment Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 58% (implying that it keeps only 42% of profits) for Schoeller-Bleckmann Oilfield Equipment suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Schoeller-Bleckmann Oilfield Equipment has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 76% over the next three years. Still, forecasts suggest that Schoeller-Bleckmann Oilfield Equipment's future ROE will rise to 6.1% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.

Summary

On the whole, we do feel that Schoeller-Bleckmann Oilfield Equipment has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

If you’re looking to trade Schoeller-Bleckmann Oilfield Equipment, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.