Do Fundamentals Have Any Role To Play In Driving Österreichische Post AG's (VIE:POST) Stock Up Recently?

Österreichische Post's (VIE:POST) stock is up by 3.6% over the past month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Österreichische Post'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Österreichische Post

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 Österreichische Post is:

18% = €109m ÷ €609m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.18.

Why Is ROE Important For 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. 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.

Österreichische Post's Earnings Growth And 18% ROE

To start with, Österreichische Post's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.0%. This certainly adds some context to Österreichische Post's decent 5.6% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Österreichische Post's reported growth was lower than the industry growth of 8.7% in the same period, which is not something we like to see.

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). Doing so will help them establish if the stock's future looks promising or ominous. Is POST fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Österreichische Post Using Its Retained Earnings Effectively?

While Österreichische Post has a three-year median payout ratio of 96% (which means it retains 4.0% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Österreichische Post 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 90%. As a result, Österreichische Post's ROE is not expected to change by much either, which we inferred from the analyst estimate of 20% for future ROE.

Conclusion

On the whole, we do feel that Österreichische Post has some positive attributes. Its earnings have grown respectably as we saw earlier, probably due to its high returns. However, it does reinvest little to almost none of its profits, so we wonder what effect this could have on its future growth prospects. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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. 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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