Amadeus IT Group, S.A.'s (BME:AMS) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Amadeus IT Group's (BME:AMS) stock is up by 4.0% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Amadeus IT Group's ROE.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Do You Calculate Return On Equity?

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 Amadeus IT Group is:

24% = €1.3b ÷ €5.5b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.24 in profit.

See our latest analysis for Amadeus IT Group

Why Is ROE Important For 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. 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.

Amadeus IT Group's Earnings Growth And 24% ROE

To begin with, Amadeus IT Group has a pretty high ROE which is interesting. Even when compared to the industry average of 21% the company's ROE is pretty decent. Given the circumstances, the significant 47% net income growth seen by Amadeus IT Group over the last five years is not surprising.

As a next step, we compared Amadeus IT Group's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 56% in the same period.

Earnings growth is a huge factor in stock valuation. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Amadeus IT Group is trading on a high P/E or a low P/E, relative to its industry.

Is Amadeus IT Group Making Efficient Use Of Its Profits?

Amadeus IT Group has a three-year median payout ratio of 47% (where it is retaining 53% of its income) which is not too low or not too high. By the looks of it, the dividend is well covered and Amadeus IT Group is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Besides, Amadeus IT Group has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 48%. As a result, Amadeus IT Group's ROE is not expected to change by much either, which we inferred from the analyst estimate of 26% for future ROE.

Summary

Overall, we are quite pleased with Amadeus IT Group's performance. 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. 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.