Aena S.M.E., S.A.'s (BME:AENA) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Aena S.M.E (BME:AENA) has had a rough month with its share price down 8.4%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Aena S.M.E'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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 Aena S.M.E is:

26% = €2.1b ÷ €7.9b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.26 in profit.

View our latest analysis for Aena S.M.E

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Aena S.M.E's Earnings Growth And 26% ROE

Firstly, we acknowledge that Aena S.M.E has a significantly high ROE. Secondly, even when compared to the industry average of 12% the company's ROE is quite impressive. So, the substantial 53% net income growth seen by Aena S.M.E over the past five years isn't overly surprising.

We then compared Aena S.M.E's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 31% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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 Aena S.M.E is trading on a high P/E or a low P/E, relative to its industry.

Is Aena S.M.E Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 70% (implying that it keeps only 30% of profits) for Aena S.M.E suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Aena S.M.E is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 78%. Accordingly, forecasts suggest that Aena S.M.E's future ROE will be 24% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Aena S.M.E's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.