Gaztransport & Technigaz SA's (EPA:GTT) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

With its stock down 4.5% over the past month, it is easy to disregard Gaztransport & Technigaz (EPA:GTT). However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Gaztransport & Technigaz's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You 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 Gaztransport & Technigaz is:

71% = €357m ÷ €500m (Based on the trailing twelve months to June 2025).

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 €0.71 in profit.

Check out our latest analysis for Gaztransport & Technigaz

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Gaztransport & Technigaz's Earnings Growth And 71% ROE

First thing first, we like that Gaztransport & Technigaz has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 9.7% also doesn't go unnoticed by us. This likely paved the way for the modest 17% net income growth seen by Gaztransport & Technigaz over the past five years.

Next, on comparing with the industry net income growth, we found that Gaztransport & Technigaz's reported growth was lower than the industry growth of 32% 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. Doing so will help them establish if the stock's future looks promising or ominous. What is GTT worth today? The intrinsic value infographic in our free research report helps visualize whether GTT is currently mispriced by the market.

Is Gaztransport & Technigaz Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 81% (or a retention ratio of 19%) for Gaztransport & Technigaz suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Gaztransport & Technigaz 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 80%. As a result, Gaztransport & Technigaz's ROE is not expected to change by much either, which we inferred from the analyst estimate of 62% for future ROE.

Summary

In total, it does look like Gaztransport & Technigaz has some positive aspects to its business. The company has grown its earnings moderately as previously discussed. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be quite low. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.