La Française des Jeux Société anonyme's (EPA:FDJ) Stock Is Going Strong: Is the Market Following Fundamentals?

La Française des Jeux Société anonyme's (EPA:FDJ) stock is up by a considerable 21% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to La Française des Jeux Société anonyme's ROE today.

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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for La Française des Jeux Société anonyme

How To 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 La Française des Jeux Société anonyme is:

45% = €457m ÷ €1.0b (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 €0.45.

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. 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. 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.

A Side By Side comparison of La Française des Jeux Société anonyme's Earnings Growth And 45% ROE

First thing first, we like that La Française des Jeux Société anonyme has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 11% which is quite remarkable. As a result, La Française des Jeux Société anonyme's exceptional 24% net income growth seen over the past five years, doesn't come as a surprise.

We then performed a comparison between La Française des Jeux Société anonyme's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 25% in the same 5-year period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is FDJ fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is La Française des Jeux Société anonyme Efficiently Re-investing Its Profits?

La Française des Jeux Société anonyme has a significant three-year median payout ratio of 77%, meaning the company only retains 23% of its income. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.

Additionally, La Française des Jeux Société anonyme has paid dividends over a period of four years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 81%. 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 39% for future ROE.

Summary

In total, we are pretty happy with La Française des Jeux Société anonyme's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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.