Österreichische Post AG's (VIE:POST) Has Performed Well But Fundamentals Look Varied: Is There A Clear Direction For The Stock?

By
Simply Wall St
Published
January 09, 2022
WBAG:POST
Source: Shutterstock

Most readers would already know that Österreichische Post's (VIE:POST) stock increased by 6.3% over the past three months. However, the company's financials look a bit inconsistent and market outcomes are ultimately driven by long-term fundamentals, meaning that the stock could head in either direction. Particularly, we will be paying attention to Österreichische Post's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Österreichische Post

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 Österreichische Post is:

25% = €161m ÷ €645m (Based on the trailing twelve months to September 2021).

The 'return' is the yearly profit. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.25 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

Österreichische Post's Earnings Growth And 25% ROE

To begin with, Österreichische Post has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 20% which is quite remarkable. However, we are curious as to how the high returns still resulted in a flat growth for Österreichische Post in the past five years. Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by12% in the same period.

past-earnings-growth
WBAG:POST Past Earnings Growth January 9th 2022

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is POST worth today? The intrinsic value infographic in our free research report helps visualize whether POST is currently mispriced by the market.

Is Österreichische Post Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 96% (meaning, the company retains only 4.0% of profits) for Österreichische Post suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Moreover, Österreichische Post has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 83% of its profits over the next three years. Accordingly, forecasts suggest that Österreichische Post's future ROE will be 24% which is again, similar to the current ROE.

Conclusion

Overall, we have mixed feelings about Österreichische Post. Despite the high ROE, the company has a disappointing earnings growth number, due to its poor rate of reinvestment into its business. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow, albeit marginally, in the future. 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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