Is Nucletron Electronic Aktiengesellschaft's(FRA:NUC) Recent Stock Performance Tethered To Its Strong Fundamentals?

By
Simply Wall St
Published
November 17, 2021
DB:NUC
Source: Shutterstock

Most readers would already be aware that Nucletron Electronic's (FRA:NUC) stock increased significantly by 11% over the past week. 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 Nucletron Electronic'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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Nucletron Electronic

How Do You Calculate Return On Equity?

Return on equity 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 Nucletron Electronic is:

12% = €1.4m ÷ €12m (Based on the trailing twelve months to June 2021).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.12 in profit.

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.

Nucletron Electronic's Earnings Growth And 12% ROE

To begin with, Nucletron Electronic seems to have a respectable ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. This probably goes some way in explaining Nucletron Electronic's moderate 8.0% growth over the past five years amongst other factors.

As a next step, we compared Nucletron Electronic's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 9.4% in the same period.

past-earnings-growth
DB:NUC Past Earnings Growth November 18th 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Nucletron Electronic's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Nucletron Electronic Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 73% (or a retention ratio of 27%) for Nucletron Electronic suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Nucletron Electronic 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

On the whole, we feel that Nucletron Electronic's performance has been quite good. 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. Up till now, we've only made a short study of the company's growth data. You can do your own research on Nucletron Electronic 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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