Is Motor Oil (Hellas) Corinth Refineries S.A.'s (ATH:MOH) Stock's Recent Performance A Reflection Of Its Financial Health?

Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) stock is up by 5.0% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to Motor Oil (Hellas) Corinth Refineries' ROE today.

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.

Check out our latest analysis for Motor Oil (Hellas) Corinth Refineries

How Is ROE Calculated?

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 Motor Oil (Hellas) Corinth Refineries is:

12% = €314m ÷ €2.7b (Based on the trailing twelve months to September 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.12 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. 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.

Motor Oil (Hellas) Corinth Refineries' Earnings Growth And 12% ROE

To begin with, Motor Oil (Hellas) Corinth Refineries seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 11%. This certainly adds some context to Motor Oil (Hellas) Corinth Refineries' exceptional 41% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Motor Oil (Hellas) Corinth Refineries' growth is quite high when compared to the industry average growth of 29% in the same period, which is great to see.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. 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 Efficiently Re-investing Its Profits?

Motor Oil (Hellas) Corinth Refineries' ' three-year median payout ratio is on the lower side at 24% implying that it is retaining a higher percentage (76%) of its profits. So it looks like Motor Oil (Hellas) Corinth Refineries is reinvesting profits heavily to grow its business, which shows in its earnings growth.

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. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 48% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Conclusion

Overall, we are quite pleased with Motor Oil (Hellas) Corinth Refineries' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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 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.