Télévision Française 1 Société anonyme's (EPA:TFI) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Télévision Française 1 Société anonyme (EPA:TFI) 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. Particularly, we will be paying attention to Télévision Française 1 Société anonyme's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Télévision Française 1 Société anonyme

How Is ROE Calculated?

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 Télévision Française 1 Société anonyme is:

12% = €224m ÷ €1.8b (Based on the trailing twelve months to March 2022).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.12.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Télévision Française 1 Société anonyme's Earnings Growth And 12% ROE

To start with, Télévision Française 1 Société anonyme's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 13%. Télévision Française 1 Société anonyme's decent returns aren't reflected in Télévision Française 1 Société anonyme'smediocre five year net income growth average of 4.7%. A few likely reasons that could be keeping earnings growth low are - the company has a high payout ratio or the business has allocated capital poorly, for instance.

Next, on comparing with the industry net income growth, we found that Télévision Française 1 Société anonyme's reported growth was lower than the industry growth of 8.0% in the same period, which is not something we like to see.

Earnings growth is an important metric to consider when valuing a stock. 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 Télévision Française 1 Société anonyme's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Télévision Française 1 Société anonyme Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 59% (that is, the company retains only 41% of its income) over the past three years for Télévision Française 1 Société anonyme suggests that the company's earnings growth was lower as a result of paying out a majority of its earnings.

In addition, Télévision Française 1 Société anonyme has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 54% of its profits over the next three years. As a result, Télévision Française 1 Société anonyme's ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.

Conclusion

On the whole, we do feel that Télévision Française 1 Société anonyme has some positive attributes. However, while the company does have a high ROE, its earnings growth number is quite disappointing. This can be blamed on the fact that it reinvests only a small portion of its profits and pays out the rest as dividends. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.