Autoneum Holding AG's (VTX:AUTN) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Autoneum Holding (VTX:AUTN) has had a great run on the share market with its stock up by a significant 34% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Autoneum Holding's ROE today.

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

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How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Autoneum Holding is:

12% = CHF70m ÷ CHF604m (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. That means that for every CHF1 worth of shareholders' equity, the company generated CHF0.12 in profit.

View our latest analysis for Autoneum Holding

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. 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.

A Side By Side comparison of Autoneum Holding's Earnings Growth And 12% ROE

To begin with, Autoneum Holding seems to have a respectable ROE. Especially when compared to the industry average of 8.1% the company's ROE looks pretty impressive. This probably laid the ground for Autoneum Holding's significant 64% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Autoneum Holding's growth is quite high when compared to the industry average growth of 28% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Autoneum Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Autoneum Holding Efficiently Re-investing Its Profits?

Autoneum Holding has a three-year median payout ratio of 31% (where it is retaining 69% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Autoneum Holding is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Autoneum Holding has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 37% of its profits over the next three years. As a result, Autoneum Holding's ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.

Summary

In total, we are pretty happy with Autoneum Holding's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.