Bucher Industries AG's (VTX:BUCN) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that Bucher Industries' (VTX:BUCN) stock increased significantly by 15% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Bucher Industries' ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Bucher Industries

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 Bucher Industries is:

13% = CHF175m ÷ CHF1.3b (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. So, this means that for every CHF1 of its shareholder's investments, the company generates a profit of CHF0.13.

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. 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.

Bucher Industries' Earnings Growth And 13% ROE

At first glance, Bucher Industries seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 13%. This certainly adds some context to Bucher Industries' moderate 11% net income growth seen over the past five years.

We then compared Bucher Industries' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 6.9% in the same period.

Earnings growth is a huge factor in stock valuation. 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. Is Bucher Industries fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Bucher Industries Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 36% (implying that the company retains 64% of its profits), it seems that Bucher Industries is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, Bucher Industries 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 42%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 13%.

Conclusion

In total, we are pretty happy with Bucher Industries' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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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