Are Strong Financial Prospects The Force That Is Driving The Momentum In Compagnie Générale des Établissements Michelin Société en commandite par actions' EPA:ML) Stock?

Compagnie Générale des Établissements Michelin Société en commandite par actions' (EPA:ML) stock is up by a considerable 11% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Compagnie Générale des Établissements Michelin Société en commandite par actions' ROE today.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

How Is ROE Calculated?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Compagnie Générale des Établissements Michelin Société en commandite par actions is:

11% = €1.9b ÷ €18b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.11 in profit.

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. 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. 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.

Compagnie Générale des Établissements Michelin Société en commandite par actions' Earnings Growth And 11% ROE

To begin with, Compagnie Générale des Établissements Michelin Société en commandite par actions seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 7.2%. This certainly adds some context to Compagnie Générale des Établissements Michelin Société en commandite par actions' decent 13% net income growth seen over the past five years.

We then performed a comparison between Compagnie Générale des Établissements Michelin Société en commandite par actions' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 13% in the same 5-year 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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Compagnie Générale des Établissements Michelin Société en commandite par actions''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Compagnie Générale des Établissements Michelin Société en commandite par actions Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 45% (implying that the company retains 55% of its profits), it seems that Compagnie Générale des Établissements Michelin Société en commandite par actions is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Moreover, Compagnie Générale des Établissements Michelin Société en commandite par actions 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 47% of its profits over the next three years. Still, forecasts suggest that Compagnie Générale des Établissements Michelin Société en commandite par actions' future ROE will rise to 13% even though the the company's payout ratio is not expected to change by much.

Summary

Overall, we are quite pleased with Compagnie Générale des Établissements Michelin Société en commandite par actions' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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.