Should Weakness in Athos Immobilien AG's (VIE:ATH) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

Athos Immobilien (VIE:ATH) has had a rough three months with its share price down 1.9%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Athos Immobilien's ROE.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Athos Immobilien

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 Athos Immobilien is:

5.8% = €2.9m ÷ €50m (Based on the trailing twelve months to June 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.06 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 Athos Immobilien's Earnings Growth And 5.8% ROE

When you first look at it, Athos Immobilien's ROE doesn't look that attractive. However, given that the company's ROE is similar to the average industry ROE of 5.8%, we may spare it some thought. Even so, Athos Immobilien has shown a fairly decent growth in its net income which grew at a rate of 14%. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Athos Immobilien's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 14% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 Athos Immobilien's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Athos Immobilien Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 58% (or a retention ratio of 42%) for Athos Immobilien suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Athos Immobilien has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we feel that Athos Immobilien certainly does have some positive factors to consider. 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. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Athos Immobilien's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.
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