Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

With its stock down 3.5% over the past week, it is easy to disregard Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Compagnie Générale des Établissements Michelin Société en commandite par actions' ROE in this article.

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?

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 Compagnie Générale des Établissements Michelin Société en commandite par actions is:

8.8% = €1.6b ÷ €18b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.09 in profit.

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

Why Is ROE Important For 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. 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.

A Side By Side comparison of Compagnie Générale des Établissements Michelin Société en commandite par actions' Earnings Growth And 8.8% ROE

When you first look at it, Compagnie Générale des Établissements Michelin Société en commandite par actions' ROE doesn't look that attractive. However, its ROE is similar to the industry average of 7.4%, so we won't completely dismiss the company. Even so, Compagnie Générale des Établissements Michelin Société en commandite par actions has shown a fairly decent growth in its net income which grew at a rate of 11%. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Compagnie Générale des Établissements Michelin Société en commandite par actions' 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.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Compagnie Générale des Établissements Michelin Société en commandite par actions fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Compagnie Générale des Établissements Michelin Société en commandite par actions Efficiently Re-investing Its Profits?

With a three-year median payout ratio of 49% (implying that the company retains 51% 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.

Besides, Compagnie Générale des Établissements Michelin Société en commandite par actions has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 57%. However, Compagnie Générale des Établissements Michelin Société en commandite par actions' ROE is predicted to rise to 13% despite there being no anticipated change in its payout ratio.

Conclusion

Overall, we feel that Compagnie Générale des Établissements Michelin Société en commandite par actions certainly does have some positive factors to consider. Specifically, its fairly high earnings growth number, which no doubt was backed by the company's high earnings retention. Still, the low ROE means that all that reinvestment is not reaping a lot of benefit to the investors. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.