Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's (EPA:BAIN) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) has had a rough three months with its share price down 8.2%. 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 test of how effectively a company is growing its value and managing investors’ money. 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 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco

How To Calculate Return On Equity?

Return on equity 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 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' refers to a company's earnings over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.07 in profit.

What Is The Relationship Between ROE And Earnings Growth?

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

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

At first glance, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROE doesn't look very promising. Next, when compared to the average industry ROE of 11%, the company's ROE leaves us feeling even less enthusiastic. In spite of this, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco was able to grow its net income considerably, at a rate of 37% in the last five years. Therefore, there could be other reasons behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 30% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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. 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.

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

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. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth.

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.