Comet Holding AG's (VTX:COTN) Stock Is Going Strong: Is the Market Following Fundamentals?
Comet Holding's (VTX:COTN) stock is up by a considerable 15% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Comet Holding's 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Comet Holding
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 Comet Holding is:
24% = CHF78m ÷ CHF332m (Based on the trailing twelve months to December 2022).
The 'return' is the income the business earned over the last year. So, this means that for every CHF1 of its shareholder's investments, the company generates a profit of CHF0.24.
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. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Comet Holding's Earnings Growth And 24% ROE
Firstly, we acknowledge that Comet Holding has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 17% also doesn't go unnoticed by us. Under the circumstances, Comet Holding's considerable five year net income growth of 34% was to be expected.
We then compared Comet Holding's 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 7.4% in the same period.
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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is COTN worth today? The intrinsic value infographic in our free research report helps visualize whether COTN is currently mispriced by the market.
Is Comet Holding Efficiently Re-investing Its Profits?
Comet Holding's three-year median payout ratio is a pretty moderate 37%, meaning the company retains 63% of its income. So it seems that Comet Holding is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Additionally, Comet Holding has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with 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 36%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 24%.
On the whole, we feel that Comet Holding's performance has been quite good. 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.
Comet Holding AG, together with its subsidiaries, provides X-ray and radio frequency (RF) power technology solutions in Switzerland, Germany, the rest of Europe, North America, China, Japan, the rest of Asia, and internationally.
Flawless balance sheet with solid track record.