Are Strong Financial Prospects The Force That Is Driving The Momentum In BELIMO Holding AG's VTX:BEAN) Stock?

Most readers would already be aware that BELIMO Holding's (VTX:BEAN) stock increased significantly by 62% over the past 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 BELIMO Holding's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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 BELIMO Holding is:

25% = CHF147m ÷ CHF581m (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every CHF1 worth of equity, the company was able to earn CHF0.25 in profit.

View our latest analysis for BELIMO Holding

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. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

BELIMO Holding's Earnings Growth And 25% ROE

To begin with, BELIMO Holding has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 14% the company's ROE is quite impressive. Probably as a result of this, BELIMO Holding was able to see a decent net income growth of 7.6% over the last five years.

Next, on comparing with the industry net income growth, we found that the growth figure reported by BELIMO Holding compares quite favourably to the industry average, which shows a decline of 6.5% over the last few years.

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. Is BELIMO Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is BELIMO Holding Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 83% (or a retention ratio of 17%) for BELIMO Holding suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, BELIMO 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. 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 78%. However, BELIMO Holding's ROE is predicted to rise to 32% despite there being no anticipated change in its payout ratio.

Summary

On the whole, we feel that BELIMO Holding's performance has been quite good. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.