CTS Eventim AG & Co. KGaA's (ETR:EVD) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

It is hard to get excited after looking at CTS Eventim KGaA's (ETR:EVD) recent performance, when its stock has declined 21% over the past three months. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to CTS Eventim KGaA's ROE today.

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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To 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 CTS Eventim KGaA is:

29% = €316m ÷ €1.1b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.29.

Check out our latest analysis for CTS Eventim KGaA

Why Is ROE Important For 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 CTS Eventim KGaA's Earnings Growth And 29% ROE

To begin with, CTS Eventim KGaA has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 3.6% the company's ROE is quite impressive. So, the substantial 45% net income growth seen by CTS Eventim KGaA over the past five years isn't overly surprising.

We then performed a comparison between CTS Eventim KGaA's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 45% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. 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. What is EVD worth today? The intrinsic value infographic in our free research report helps visualize whether EVD is currently mispriced by the market.

Is CTS Eventim KGaA Making Efficient Use Of Its Profits?

The three-year median payout ratio for CTS Eventim KGaA is 50%, which is moderately low. The company is retaining the remaining 50%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like CTS Eventim KGaA is reinvesting its earnings efficiently.

Besides, CTS Eventim KGaA has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its 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 49%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 24%.

Conclusion

On the whole, we feel that CTS Eventim KGaA'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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.