Did Greek Organization of Football Prognostics SA. (ATH:OPAP) Create Value For Shareholders?

With an ROE of 17.36%, Greek Organization of Football Prognostics SA. (ATSE:OPAP) outpaced its own industry which delivered a less exciting 10.76% over the past year. Though, the impressiveness of OPAP’s ROE is contingent on whether this industry-beating level can be sustained. This can be measured by looking at the company’s financial leverage. With more debt, OPAP can invest even more and earn more money, thus pushing up its returns. However, ROE only measures returns against equity, not debt. This can be distorted, so let’s take a look at it further. Check out our latest analysis for Greek Organization of Football Prognostics

Breaking down Return on Equity

Return on Equity (ROE) weighs Greek Organization of Football Prognostics’s profit against the level of its shareholders’ equity. An ROE of 17.36% implies €0.17 returned on every €1 invested, so the higher the return, the better. If investors diversify their portfolio by industry, they may want to maximise their return in the Casinos and Gaming sector by investing in the highest returning stock. However, this can be deceiving as each company has varying costs of equity and debt levels, which could exaggeratedly push up ROE at the same time as accumulating high interest expense.

ROE is assessed against cost of equity, which is measured using the Capital Asset Pricing Model (CAPM) – but let’s not dive into the details of that today. For now, let’s just look at the cost of equity number for Greek Organization of Football Prognostics, which is 10.85%. This means Greek Organization of Football Prognostics returns enough to cover its own cost of equity, with a buffer of 6.51%. This sustainable practice implies that the company pays less for its capital than what it generates in return. ROE can be dissected into three distinct ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

The first component is profit margin, which measures how much of sales is retained after the company pays for all its expenses. Asset turnover reveals how much revenue can be generated from Greek Organization of Football Prognostics’s asset base. The most interesting ratio, and reflective of sustainability of its ROE, is financial leverage. We can assess whether Greek Organization of Football Prognostics is fuelling ROE by excessively raising debt. Ideally, Greek Organization of Football Prognostics should have a balanced capital structure, which we can check by looking at the historic debt-to-equity ratio of the company. The most recent ratio is 60.69%, which is sensible and indicates Greek Organization of Football Prognostics has not taken on too much leverage. Thus, we can conclude its above-average ROE is generated from its capacity to increase profit without a large debt burden.

Next Steps:

ROE is a simple yet informative ratio, illustrating the various components that each measure the quality of the overall stock. Greek Organization of Football Prognostics exhibits a strong ROE against its peers, as well as sufficient returns to cover its cost of equity. Its high ROE is not likely to be driven by high debt. Therefore, investors may have more confidence in the sustainability of this level of returns going forward. ROE is a helpful signal, but it is definitely not sufficient on its own to make an investment decision.

For Greek Organization of Football Prognostics, there are three important factors you should further research:

• 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
• 2. Valuation: What is Greek Organization of Football Prognostics worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Greek Organization of Football Prognostics is currently mispriced by the market.
• 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Greek Organization of Football Prognostics? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.