Is CIE Automotive, S.A.'s (BME:CIE) Latest Stock Performance A Reflection Of Its Financial Health?

CIE Automotive's (BME:CIE) stock is up by a considerable 11% over the past three months. 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. Particularly, we will be paying attention to CIE Automotive'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Is ROE Calculated?

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 CIE Automotive is:

65% = €1.3b ÷ €1.9b (Based on the trailing twelve months to March 2025).

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 €0.65 in profit.

Check out our latest analysis for CIE Automotive

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.

CIE Automotive's Earnings Growth And 65% ROE

First thing first, we like that CIE Automotive has an impressive ROE. Secondly, even when compared to the industry average of 8.1% the company's ROE is quite impressive. So, the substantial 28% net income growth seen by CIE Automotive over the past five years isn't overly surprising.

We then performed a comparison between CIE Automotive's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 28% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Has the market priced in the future outlook for CIE? You can find out in our latest intrinsic value infographic research report.

Is CIE Automotive Using Its Retained Earnings Effectively?

The three-year median payout ratio for CIE Automotive is 34%, which is moderately low. The company is retaining the remaining 66%. By the looks of it, the dividend is well covered and CIE Automotive is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, CIE Automotive 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 33%. Regardless, CIE Automotive's ROE is speculated to decline to 19% despite there being no anticipated change in its payout ratio.

Conclusion

On the whole, we feel that CIE Automotive's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.