Has Organization of Football Prognostics S.A. (ATH:OPAP) Stock's Recent Performance Got Anything to Do With Its Financial Health?

Organization of Football Prognostics' (ATH:OPAP) stock up by 6.8% 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 Organization of Football Prognostics' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Organization of Football Prognostics is:

70% = €510m ÷ €730m (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.70 in profit.

Check out our latest analysis for Organization of Football Prognostics

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Organization of Football Prognostics' Earnings Growth And 70% ROE

Firstly, we acknowledge that Organization of Football Prognostics has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 16% also doesn't go unnoticed by us. Under the circumstances, Organization of Football Prognostics' considerable five year net income growth of 22% was to be expected.

We then compared Organization of Football Prognostics' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 52% in the same 5-year period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. 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. Is OPAP fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Organization of Football Prognostics Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 98% (implying that it keeps only 2.5% of profits) for Organization of Football Prognostics suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Organization of Football Prognostics 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 105%. As a result, Organization of Football Prognostics' ROE is not expected to change by much either, which we inferred from the analyst estimate of 84% for future ROE.

Conclusion

Overall, we feel that Organization of Football Prognostics certainly does have some positive factors to consider. The company has grown its earnings moderately as a result of its impressive ROE. Yet, the business is retaining hardly any of its profits. This might have negative implications on the company's future growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.