Hiab Oyj's (HEL:HIAB) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?

Hiab Oyj (HEL:HIAB) has had a great run on the share market with its stock up by a significant 23% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to Hiab Oyj'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Hiab Oyj is:

16% = €159m ÷ €1.0b (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.16 in profit.

See our latest analysis for Hiab Oyj

What Is The Relationship Between ROE And 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.

Hiab Oyj's Earnings Growth And 16% ROE

To start with, Hiab Oyj's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 17%. This certainly adds some context to Hiab Oyj's moderate 17% net income growth seen over the past five years.

As a next step, we compared Hiab Oyj's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 28% in the same period.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Hiab Oyj fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Hiab Oyj Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 91% (or a retention ratio of 8.7%) for Hiab Oyj suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Hiab Oyj 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 is expected to drop to 47% over the next three years. Regardless, the ROE is not expected to change much for the company despite the lower expected payout ratio.

Summary

In total, it does look like Hiab Oyj has some positive aspects to its business. Its earnings have grown respectably as we saw earlier, probably due to its high returns. However, it does reinvest little to almost none of its profits, so we wonder what effect this could have on its future growth prospects. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.