Are Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's (EPA:BAIN) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) has had a rough week with its share price down 2.0%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROE in this article.

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.

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How To 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 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is:

6.8% = €112m ÷ €1.6b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.07 in profit.

Check out our latest analysis for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's Earnings Growth And 6.8% ROE

On the face of it, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROE is not much to talk about. Next, when compared to the average industry ROE of 10%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco grew its net income at a significant rate of 37% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 34% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is trading on a high P/E or a low P/E , relative to its industry.

Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco Efficiently Re-investing Its Profits?

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has a three-year median payout ratio of 31% (where it is retaining 69% of its income) which is not too low or not too high. So it seems that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Moreover, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco 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.

Summary

On the whole, we do feel that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business.

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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.