Is Mühlbauer Holding AG's (ETR:MUB) Latest Stock Performance Being Led By Its Strong Fundamentals?

By
Simply Wall St
Published
January 21, 2021

Most readers would already know that Mühlbauer Holding's (ETR:MUB) stock increased by 1.5% over the past week. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Mühlbauer Holding's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Mühlbauer Holding

How To Calculate Return On Equity?

ROE can be calculated by using the formula:

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

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

23% = €49m ÷ €211m (Based on the trailing twelve months to June 2020).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.23 in profit.

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. 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 Mühlbauer Holding's Earnings Growth And 23% ROE

To begin with, Mühlbauer Holding has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 5.8% the company's ROE is quite impressive. Probably as a result of this, Mühlbauer Holding was able to see a decent net income growth of 8.7% over the last five years.

Next, on comparing with the industry net income growth, we found that Mühlbauer Holding's growth is quite high when compared to the industry average growth of 3.4% in the same period, which is great to see.

XTRA:MUB Past Earnings Growth January 22nd 2021

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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Mühlbauer Holding is trading on a high P/E or a low P/E, relative to its industry.

Is Mühlbauer Holding Efficiently Re-investing Its Profits?

While Mühlbauer Holding has a three-year median payout ratio of 54% (which means it retains 46% 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, Mühlbauer Holding 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.

Summary

In total, we are pretty happy with Mühlbauer Holding's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Mühlbauer Holding and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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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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