Should Weakness in Kuehne + Nagel International AG's (VTX:KNIN) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

With its stock down 13% over the past three months, it is easy to disregard Kuehne + Nagel International (VTX:KNIN). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Kuehne + Nagel International'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Kuehne + Nagel International is:

38% = CHF1.2b ÷ CHF3.3b (Based on the trailing twelve months to December 2024).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each CHF1 of shareholders' capital it has, the company made CHF0.38 in profit.

Check out our latest analysis for Kuehne + Nagel International

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.

A Side By Side comparison of Kuehne + Nagel International's Earnings Growth And 38% ROE

Firstly, we acknowledge that Kuehne + Nagel International has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 18% also doesn't go unnoticed by us. This likely paved the way for the modest 9.4% net income growth seen by Kuehne + Nagel International over the past five years.

As a next step, we compared Kuehne + Nagel International's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 36% in the same period.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Kuehne + Nagel International fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Kuehne + Nagel International Making Efficient Use Of Its Profits?

While Kuehne + Nagel International has a three-year median payout ratio of 83% (which means it retains 17% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Moreover, Kuehne + Nagel International 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 77%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 33%.

Conclusion

On the whole, we do feel that Kuehne + Nagel International has some positive attributes. The company has grown its earnings moderately as previously discussed. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be quite low. 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.