Organization of Football Prognostics S.A.'s (ATH:OPAP) Stock Has Fared Decently: Is the Market Following Strong Financials?

Organization of Football Prognostics' (ATH:OPAP) stock up by 6.1% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Specifically, we decided to study Organization of Football Prognostics' ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Organization of Football Prognostics

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Organization of Football Prognostics is:

53% = €414m ÷ €775m (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.53 in profit.

Why Is ROE Important For 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.

Organization of Football Prognostics' Earnings Growth And 53% ROE

To begin with, Organization of Football Prognostics has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 9.1% also doesn't go unnoticed by us. Under the circumstances, Organization of Football Prognostics' considerable five year net income growth of 32% was to be expected.

Next, on comparing with the industry net income growth, we found that Organization of Football Prognostics' growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for OPAP? You can find out in our latest intrinsic value infographic research report.

Is Organization of Football Prognostics Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 80% (implying that it keeps only 20% 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.

Moreover, Organization of Football Prognostics is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 117% over the next three years. Regardless, the future ROE for Organization of Football Prognostics is speculated to rise to 97% despite the anticipated increase in the payout ratio. There could probably be other factors that could be driving the future growth in the ROE.

Conclusion

Overall, we are quite pleased with Organization of Football Prognostics' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.