LVMH Moët Hennessy - Louis Vuitton, Société Européenne's (EPA:MC) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that LVMH Moët Hennessy - Louis Vuitton Société Européenne's (EPA:MC) stock increased by 2.2% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Specifically, we decided to study LVMH Moët Hennessy - Louis Vuitton Société Européenne'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.

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

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 LVMH Moët Hennessy - Louis Vuitton Société Européenne is:

22% = €15b ÷ €66b (Based on the trailing twelve months to June 2024).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.22.

What Is The Relationship Between ROE And 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. 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.

LVMH Moët Hennessy - Louis Vuitton Société Européenne's Earnings Growth And 22% ROE

Firstly, we acknowledge that LVMH Moët Hennessy - Louis Vuitton Société Européenne has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 18% which is quite remarkable. So, the substantial 23% net income growth seen by LVMH Moët Hennessy - Louis Vuitton Société Européenne over the past five years isn't overly surprising.

We then performed a comparison between LVMH Moët Hennessy - Louis Vuitton Société Européenne's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 23% 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. Doing so will help them establish if the stock's future looks promising or ominous. Is MC fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is LVMH Moët Hennessy - Louis Vuitton Société Européenne Efficiently Re-investing Its Profits?

LVMH Moët Hennessy - Louis Vuitton Société Européenne has a three-year median payout ratio of 43% (where it is retaining 57% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like LVMH Moët Hennessy - Louis Vuitton Société Européenne is reinvesting its earnings efficiently.

Moreover, LVMH Moët Hennessy - Louis Vuitton Société Européenne 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. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 54% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.

Conclusion

In total, we are pretty happy with LVMH Moët Hennessy - Louis Vuitton Société Européenne's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial 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.

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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.