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

This article is intended for those of you who are at the beginning of your investing journey and want to better understand how you can grow your money by investing in Greek Organization of Football Prognostics SA (ATH:OPAP).

Greek Organization of Football Prognostics SA (ATH:OPAP) outperformed the casinos and gaming industry on the basis of its ROE – producing a higher 17.26% relative to the peer average of 12.78% over the past 12 months. Though, the impressiveness of OPAP’s ROE is contingent on whether this industry-beating level can be sustained. Sustainability can be gauged by a company’s financial leverage – the more debt it has, the higher ROE is pumped up in the short term, at the expense of long term interest payment burden. Let me show you what I mean by this. See our latest analysis for Greek Organization of Football Prognostics

What you must know about ROE

Return on Equity (ROE) weighs Greek Organization of Football Prognostics’s profit against the level of its shareholders’ equity. It essentially shows how much the company can generate in earnings given the amount of equity it has raised. Investors that are diversifying their portfolio based on industry may want to maximise their return in the Casinos and Gaming sector by choosing the highest returning stock. However, this can be misleading as each firm has different costs of equity and debt levels i.e. the more debt Greek Organization of Football Prognostics has, the higher ROE is pumped up in the short term, at the expense of long term interest payment burden.

ROE is measured against cost of equity in order to determine the efficiency of Greek Organization of Football Prognostics’s equity capital deployed. Its cost of equity is 10.13%. Since Greek Organization of Football Prognostics’s return covers its cost in excess of 7.13%, its use of equity capital is efficient and likely to be sustainable. Simply put, Greek Organization of Football Prognostics 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:

Basically, profit margin measures how much of revenue trickles down into earnings which illustrates how efficient the business is with its cost management. Asset turnover reveals how much revenue can be generated from Greek Organization of Football Prognostics’s asset base. Finally, financial leverage will be our main focus today. It shows how much of assets are funded by equity and can show how sustainable the company’s capital structure is. ROE can be inflated by disproportionately high levels of debt. This is also unsustainable due to the high interest cost that the company will also incur. Thus, we should look at Greek Organization of Football Prognostics’s debt-to-equity ratio to examine sustainability of its returns. The most recent ratio is 91.37%, which is relatively proportionate and indicates Greek Organization of Football Prognostics has not taken on extreme leverage. Thus, we can conclude its above-average ROE is generated from its capacity to increase profit without a massive debt burden.

Next Steps:

While ROE is a relatively simple calculation, it can be broken down into different ratios, each telling a different story about the strengths and weaknesses of a company. Greek Organization of Football Prognostics’s above-industry ROE is encouraging, and is also in excess of 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, I've put together three important factors you should further examine:

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.