What's Cooking Group NV/SA's (EBR:WHATS) Stock Is Going Strong: Have Financials A Role To Play?

What's Cooking Group/SA (EBR:WHATS) has had a great run on the share market with its stock up by a significant 20% over the last week. 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 What's Cooking Group/SA'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for What's Cooking Group/SA

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for What's Cooking Group/SA is:

6.1% = €7.7m ÷ €126m (Based on the trailing twelve months to December 2023).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.06 in profit.

What Has ROE Got To Do With 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. 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.

What's Cooking Group/SA's Earnings Growth And 6.1% ROE

When you first look at it, What's Cooking Group/SA's ROE doesn't look that attractive. However, the fact that the company's ROE is higher than the average industry ROE of 3.1%, is definitely interesting. This certainly adds some context to What's Cooking Group/SA's moderate 9.6% net income growth seen over the past five years. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. Hence there might be some other aspects that are causing earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

Next, on comparing What's Cooking Group/SA's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 9.6% over the last few years.

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. What is WHATS worth today? The intrinsic value infographic in our free research report helps visualize whether WHATS is currently mispriced by the market.

Is What's Cooking Group/SA Efficiently Re-investing Its Profits?

What's Cooking Group/SA has a very high three-year median payout ratio of 103% suggesting that the company's shareholders are getting paid from more than just the company's earnings. In spite of this, the company was able to grow its earnings respectably, as we saw above. Although, the high payout ratio is certainly something we would keep an eye on if the company is not able to keep up its growth, or if business deteriorates. You can see the 4 risks we have identified for What's Cooking Group/SA by visiting our risks dashboard for free on our platform here.

Moreover, What's Cooking Group/SA 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. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 46% over the next three years.

Summary

On the whole, we do feel that What's Cooking Group/SA has some positive attributes. Namely, its high earnings growth, which was probably achieved due to its respectable ROE. However, the considerably low reinvestment rate does diminish our excitement to a certain extent. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.