Vente-Unique.com SA (EPA:ALVU) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

With its stock down 15% over the past week, it is easy to disregard Vente-Unique.com (EPA:ALVU). But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Vente-Unique.com'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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Vente-Unique.com

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 Vente-Unique.com is:

19% = €7.1m ÷ €38m (Based on the trailing twelve months to September 2023).

The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.19.

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. 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.

Vente-Unique.com's Earnings Growth And 19% ROE

To start with, Vente-Unique.com's ROE looks acceptable. On comparing with the average industry ROE of 9.1% the company's ROE looks pretty remarkable. This probably laid the ground for Vente-Unique.com's moderate 12% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Vente-Unique.com's reported growth was lower than the industry growth of 32% over the last few years, 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 Vente-Unique.com's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Vente-Unique.com Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 58% (or a retention ratio of 42%) for Vente-Unique.com suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Vente-Unique.com has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders.

Summary

On the whole, we do feel that Vente-Unique.com has some positive attributes. 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, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.