Les Docks des Pétroles d'Ambès -SA's (EPA:DPAM) Financials Are Too Obscure To Link With Current Share Price Momentum: What's In Store For the Stock?

Les Docks des Pétroles d'Ambès -SA (EPA:DPAM) has had a great run on the share market with its stock up by a significant 51% over the last three months. But the company's key financial indicators appear to be differing across the board and that makes us question whether or not the company's current share price momentum can be maintained. Specifically, we decided to study Les Docks des Pétroles d'Ambès -SA'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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Les Docks des Pétroles d'Ambès -SA

How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Les Docks des Pétroles d'Ambès -SA is:

7.4% = €4.4m ÷ €59m (Based on the trailing twelve months to June 2024).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.07 in profit.

Why Is ROE Important For 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. 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.

Les Docks des Pétroles d'Ambès -SA's Earnings Growth And 7.4% ROE

When you first look at it, Les Docks des Pétroles d'Ambès -SA's ROE doesn't look that attractive. Next, when compared to the average industry ROE of 12%, the company's ROE leaves us feeling even less enthusiastic. However, the moderate 11% net income growth seen by Les Docks des Pétroles d'Ambès -SA over the past five years is definitely a positive. So, there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing with the industry net income growth, we found that Les Docks des Pétroles d'Ambès -SA's reported growth was lower than the industry growth of 27% over the last few years, which is not something we like to see.

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. If you're wondering about Les Docks des Pétroles d'Ambès -SA's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Les Docks des Pétroles d'Ambès -SA Making Efficient Use Of Its Profits?

While Les Docks des Pétroles d'Ambès -SA has a three-year median payout ratio of 88% (which means it retains 12% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow.

Additionally, Les Docks des Pétroles d'Ambès -SA 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 feel that the performance shown by Les Docks des Pétroles d'Ambès -SA can be open to many interpretations. While no doubt its earnings growth is pretty respectable, the low profit retention could mean that the company's earnings growth could have been higher, had it been paying reinvesting a higher portion of its profits. An improvement in its ROE could also help future earnings growth. So far, we've only made a quick discussion around the company's earnings growth. So it may be worth checking this free detailed graph of Les Docks des Pétroles d'Ambès -SA's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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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.