Stock Analysis

NÜRNBERGER Beteiligungs-AG's (ETR:NBG6) Recent Stock Price Movement Is Nothing To Get Excited About But Financials Could Add More To The Story

XTRA:NBG6
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Looking at NÜRNBERGER Beteiligungs-AG's (ETR:NBG6) mostly flat share price movement over the past week, it is easy to think that there’s nothing interesting about the stock. But since value is created over the longer term, it's worth studying the company's strong financials to see what the future could hold. Particularly, we will be paying attention to NÜRNBERGER Beteiligungs-AG's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for NÜRNBERGER Beteiligungs-AG

How To 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 NÜRNBERGER Beteiligungs-AG is:

10% = €90m ÷ €869m (Based on the trailing twelve months to June 2020).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.10 in profit.

Why Is ROE Important For 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.

NÜRNBERGER Beteiligungs-AG's Earnings Growth And 10% ROE

To start with, NÜRNBERGER Beteiligungs-AG's ROE looks acceptable. Especially when compared to the industry average of 7.5% the company's ROE looks pretty impressive. This probably laid the ground for NÜRNBERGER Beteiligungs-AG's moderate 5.1% net income growth seen over the past five years.

We then compared NÜRNBERGER Beteiligungs-AG'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 0.3% in the same period.

past-earnings-growth
XTRA:NBG6 Past Earnings Growth November 24th 2020

Earnings growth is a huge factor in stock valuation. 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. If you're wondering about NÜRNBERGER Beteiligungs-AG's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is NÜRNBERGER Beteiligungs-AG Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 53% (or a retention ratio of 47%) for NÜRNBERGER Beteiligungs-AG suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, NÜRNBERGER Beteiligungs-AG 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 NÜRNBERGER Beteiligungs-AG's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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Valuation is complex, but we're helping make it simple.

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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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