Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s (FRA:BLH) Stock Price Struggling As A Result Of Its Mixed Financials?

BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- (FRA:BLH) has had a rough week with its share price down 11%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Specifically, we decided to study BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-

How Do You 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 BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- is:

12% = €33m ÷ €286m (Based on the trailing twelve months to December 2023).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.12.

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. 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.

BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s Earnings Growth And 12% ROE

At first glance, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- seems to have a decent ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. However, while BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- has a pretty respectable ROE, its five year net income decline rate was 8.1% . We reckon that there could be some other factors at play here that are preventing the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

However, when we compared BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 8.0% in the same period. This is quite worrisome.

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). This then helps them determine if the stock is placed for a bright or bleak future. Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- Using Its Retained Earnings Effectively?

BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s declining earnings is not surprising given how the company is spending most of its profits in paying dividends, judging by its three-year median payout ratio of 94% (or a retention ratio of 5.9%). The business is only left with a small pool of capital to reinvest - A vicious cycle that doesn't benefit the company in the long-run. Our risks dashboard should have the 5 risks we have identified for BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-.

Moreover, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth.

Summary

Overall, we have mixed feelings about BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-. Despite the high ROE, the company has a disappointing earnings growth number, due to its poor rate of reinvestment into its business. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.