SES-imagotag Société Anonyme's (EPA:SESL) Stock Is Going Strong: Is the Market Following Fundamentals?

Most readers would already be aware that SES-imagotag Société Anonyme's (EPA:SESL) stock increased significantly by 13% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study SES-imagotag Société Anonyme'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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for SES-imagotag Société Anonyme

How Is ROE Calculated?

The formula for ROE is:

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

So, based on the above formula, the ROE for SES-imagotag Société Anonyme is:

37% = €105m ÷ €288m (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.37 in profit.

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. 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.

SES-imagotag Société Anonyme's Earnings Growth And 37% ROE

First thing first, we like that SES-imagotag Société Anonyme has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 7.2% which is quite remarkable. Under the circumstances, SES-imagotag Société Anonyme's considerable five year net income growth of 82% was to be expected.

We then compared SES-imagotag Société Anonyme's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 15% in the same 5-year period.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if SES-imagotag Société Anonyme is trading on a high P/E or a low P/E, relative to its industry.

Is SES-imagotag Société Anonyme Making Efficient Use Of Its Profits?

Given that SES-imagotag Société Anonyme doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we feel that SES-imagotag Société Anonyme's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.