Is HITECHPROS Société anonyme's (EPA:ALHIT) Recent Stock Performance Influenced By Its Financials In Any Way?

Most readers would already know that HITECHPROS Société anonyme's (EPA:ALHIT) stock increased by 9.2% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Particularly, we will be paying attention to HITECHPROS 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for HITECHPROS Société anonyme

How To Calculate Return On Equity?

Return on equity 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 HITECHPROS Société anonyme is:

51% = €2.0m ÷ €3.9m (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.51 in profit.

What Is The Relationship Between ROE And 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

HITECHPROS Société anonyme's Earnings Growth And 51% ROE

First thing first, we like that HITECHPROS Société anonyme has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. This probably laid the groundwork for HITECHPROS Société anonyme's moderate 8.6% net income growth seen over the past five years.

As a next step, we compared HITECHPROS Société anonyme's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 11% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is HITECHPROS Société anonyme fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is HITECHPROS Société anonyme Making Efficient Use Of Its Profits?

HITECHPROS Société anonyme has a significant three-year median payout ratio of 96%, meaning that it is left with only 3.6% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, HITECHPROS Société anonyme 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 do feel that HITECHPROS Société anonyme has some positive attributes. Its earnings have grown respectably as we saw earlier, probably due to its high returns. However, it does reinvest little to almost none of its profits, so we wonder what effect this could have on its future growth prospects. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on HITECHPROS Société anonyme and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. 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.
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