Is Motor Oil (Hellas) Corinth Refineries S.A.'s (ATH:MOH) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) stock is up by a considerable 15% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Motor Oil (Hellas) Corinth Refineries' ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Motor Oil (Hellas) Corinth Refineries

How Is ROE Calculated?

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 Motor Oil (Hellas) Corinth Refineries is:

25% = €677m ÷ €2.7b (Based on the trailing twelve months to September 2023).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.25 in profit.

Why Is ROE Important For 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. 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.

Motor Oil (Hellas) Corinth Refineries' Earnings Growth And 25% ROE

Firstly, we acknowledge that Motor Oil (Hellas) Corinth Refineries has a significantly high ROE. Secondly, even when compared to the industry average of 16% the company's ROE is quite impressive. So, the substantial 37% net income growth seen by Motor Oil (Hellas) Corinth Refineries over the past five years isn't overly surprising.

As a next step, we compared Motor Oil (Hellas) Corinth Refineries' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 24%.

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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Motor Oil (Hellas) Corinth Refineries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Motor Oil (Hellas) Corinth Refineries Making Efficient Use Of Its Profits?

Motor Oil (Hellas) Corinth Refineries' three-year median payout ratio to shareholders is 18%, which is quite low. This implies that the company is retaining 82% of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Moreover, Motor Oil (Hellas) Corinth Refineries 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. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 37% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 11%) over the same period.

Summary

In total, we are pretty happy with Motor Oil (Hellas) Corinth Refineries' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.

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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.