Stock Analysis

Brødrene Hartmann A/S' (CPH:HART) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

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CPSE:HART
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Most readers would already know that Brødrene Hartmann's (CPH:HART) stock increased by 3.5% 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 Brødrene Hartmann's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Brødrene Hartmann

How Is ROE Calculated?

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 Brødrene Hartmann is:

27% = kr.266m ÷ kr.985m (Based on the trailing twelve months to September 2020).

The 'return' is the income the business earned over the last year. So, this means that for every DKK1 of its shareholder's investments, the company generates a profit of DKK0.27.

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. 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.

Brødrene Hartmann's Earnings Growth And 27% ROE

To begin with, Brødrene Hartmann has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 12% the company's ROE is quite impressive. This probably laid the groundwork for Brødrene Hartmann's moderate 9.3% net income growth seen over the past five years.

As a next step, we compared Brødrene Hartmann's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 6.8%.

past-earnings-growth
CPSE:HART Past Earnings Growth February 5th 2021

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Brødrene Hartmann fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Brødrene Hartmann Making Efficient Use Of Its Profits?

While the company did pay out a portion of its dividend in the past, it currently doesn't pay a dividend. We infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

Overall, we are quite pleased with Brødrene Hartmann'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. Up till now, we've only made a short study of the company's growth data. To gain further insights into Brødrene Hartmann's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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