Is LVMH Moët Hennessy - Louis Vuitton, Société Européenne's (EPA:MC) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

LVMH Moët Hennessy - Louis Vuitton Société Européenne's (EPA:MC) stock is up by a considerable 13% 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. In this article, we decided to focus on LVMH Moët Hennessy - Louis Vuitton Société Européenne's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for LVMH Moët Hennessy - Louis Vuitton Société Européenne

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 LVMH Moët Hennessy - Louis Vuitton Société Européenne is:

26% = €15b ÷ €57b (Based on the trailing twelve months to December 2022).

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 €0.26 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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.

LVMH Moët Hennessy - Louis Vuitton Société Européenne's Earnings Growth And 26% ROE

First thing first, we like that LVMH Moët Hennessy - Louis Vuitton Société Européenne has an impressive ROE. Further, even comparing with the industry average if 27%, the company's ROE is quite respectable. As a result, LVMH Moët Hennessy - Louis Vuitton Société Européenne's remarkable 21% net income growth seen over the past 5 years is likely aided by its high ROE.

Next, on comparing LVMH Moët Hennessy - Louis Vuitton Société Européenne's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 17% in the same period.

Earnings growth is a huge factor in stock valuation. 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. Is LVMH Moët Hennessy - Louis Vuitton Société Européenne fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is LVMH Moët Hennessy - Louis Vuitton Société Européenne Making Efficient Use Of Its Profits?

LVMH Moët Hennessy - Louis Vuitton Société Européenne has a three-year median payout ratio of 44% (where it is retaining 56% of its income) which is not too low or not too high. So it seems that LVMH Moët Hennessy - Louis Vuitton Société Européenne is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Additionally, LVMH Moët Hennessy - Louis Vuitton Société Européenne has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 44%. Accordingly, forecasts suggest that LVMH Moët Hennessy - Louis Vuitton Société Européenne's future ROE will be 24% which is again, similar to the current ROE.

Summary

In total, we are pretty happy with LVMH Moët Hennessy - Louis Vuitton Société Européenne's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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 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.