Atresmedia Corporación de Medios de Comunicación, S.A.'s (BME:A3M) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that Atresmedia Corporación de Medios de Comunicación's (BME:A3M) stock increased significantly by 19% 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. In this article, we decided to focus on Atresmedia Corporación de Medios de Comunicación'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Atresmedia Corporación de Medios de Comunicación

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 Atresmedia Corporación de Medios de Comunicación is:

14% = €120m ÷ €830m (Based on the trailing twelve months to December 2024).

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 €0.14 in profit.

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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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Atresmedia Corporación de Medios de Comunicación's Earnings Growth And 14% ROE

To start with, Atresmedia Corporación de Medios de Comunicación's ROE looks acceptable. Especially when compared to the industry average of 12% the company's ROE looks pretty impressive. This probably laid the ground for Atresmedia Corporación de Medios de Comunicación's moderate 18% net income growth seen over the past five years.

We then performed a comparison between Atresmedia Corporación de Medios de Comunicación's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 18% in the same 5-year period.

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). 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 A3M? You can find out in our latest intrinsic value infographic research report.

Is Atresmedia Corporación de Medios de Comunicación Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 80% (or a retention ratio of 20%) for Atresmedia Corporación de Medios de Comunicación suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Atresmedia Corporación de Medios de Comunicación has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 83%. Accordingly, forecasts suggest that Atresmedia Corporación de Medios de Comunicación's future ROE will be 14% which is again, similar to the current ROE.

Conclusion

On the whole, we feel that Atresmedia Corporación de Medios de Comunicación's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.