Could The Market Be Wrong About Puuilo Oyj (HEL:PUUILO) Given Its Attractive Financial Prospects?

With its stock down 4.1% over the past week, it is easy to disregard Puuilo Oyj (HEL:PUUILO). 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. In this article, we decided to focus on Puuilo Oyj's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How Do You Calculate Return On Equity?

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 Puuilo Oyj is:

75% = €53m ÷ €70m (Based on the trailing twelve months to July 2025).

The 'return' is the amount earned after tax over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.75 in profit.

Check out our latest analysis for Puuilo Oyj

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

A Side By Side comparison of Puuilo Oyj's Earnings Growth And 75% ROE

Firstly, we acknowledge that Puuilo Oyj has a significantly high ROE. Secondly, even when compared to the industry average of 20% the company's ROE is quite impressive. Probably as a result of this, Puuilo Oyj was able to see a decent net income growth of 14% over the last five years.

Next, on comparing with the industry net income growth, we found that Puuilo Oyj's growth is quite high when compared to the industry average growth of 2.4% in the same period, which is great to see.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is PUUILO worth today? The intrinsic value infographic in our free research report helps visualize whether PUUILO is currently mispriced by the market.

Is Puuilo Oyj Making Efficient Use Of Its Profits?

While Puuilo Oyj has a three-year median payout ratio of 75% (which means it retains 25% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Puuilo Oyj has paid dividends over a period of four 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 71%. However, Puuilo Oyj's future ROE is expected to decline to 60% despite there being not much change anticipated in the company's payout ratio.

Conclusion

Overall, we are quite pleased with Puuilo Oyj's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. 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.