Could The Market Be Wrong About La Française des Jeux Société anonyme (EPA:FDJ) Given Its Attractive Financial Prospects?

La Française des Jeux Société anonyme (EPA:FDJ) has had a rough three months with its share price down 7.3%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to La Française des Jeux Société anonyme's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for La Française des Jeux Société anonyme

How Is ROE Calculated?

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 La Française des Jeux Société anonyme is:

39% = €329m ÷ €836m (Based on the trailing twelve months to June 2023).

The 'return' refers to a company's earnings over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.39.

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 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.

La Française des Jeux Société anonyme's Earnings Growth And 39% ROE

To begin with, La Française des Jeux Société anonyme has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. Under the circumstances, La Française des Jeux Société anonyme's considerable five year net income growth of 22% was to be expected.

Next, on comparing with the industry net income growth, we found that La Française des Jeux Société anonyme's growth is quite high when compared to the industry average growth of 8.0% in the same period, which is great to see.

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. This then helps them determine if the stock is placed for a bright or bleak future. What is FDJ worth today? The intrinsic value infographic in our free research report helps visualize whether FDJ is currently mispriced by the market.

Is La Française des Jeux Société anonyme Using Its Retained Earnings Effectively?

La Française des Jeux Société anonyme's significant three-year median payout ratio of 79% (where it is retaining only 21% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Moreover, La Française des Jeux Société anonyme is determined to keep sharing its profits with shareholders which we infer from its long history of three years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 84%. As a result, La Française des Jeux Société anonyme's ROE is not expected to change by much either, which we inferred from the analyst estimate of 38% for future ROE.

Conclusion

On the whole, we feel that La Française des Jeux Société anonyme's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.