Could The Market Be Wrong About Trigano S.A. (EPA:TRI) Given Its Attractive Financial Prospects?

It is hard to get excited after looking at Trigano's (EPA:TRI) recent performance, when its stock has declined 5.4% over the past month. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Trigano's ROE in this article.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Trigano is:

15% = €300m ÷ €2.0b (Based on the trailing twelve months to February 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.15 in profit.

View our latest analysis for Trigano

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Trigano's Earnings Growth And 15% ROE

At first glance, Trigano seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 6.5%. Probably as a result of this, Trigano was able to see a decent growth of 17% over the last five years.

As a next step, we compared Trigano's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 6.3%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for TRI? You can find out in our latest intrinsic value infographic research report.

Is Trigano Efficiently Re-investing Its Profits?

Trigano's three-year median payout ratio to shareholders is 23% (implying that it retains 77% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.

Moreover, Trigano 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 23% of its profits over the next three years. Accordingly, forecasts suggest that Trigano's future ROE will be 13% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Trigano's 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.

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.