Motor Oil (Hellas) Corinth Refineries S.A.'s (ATH:MOH) Stock Has Fared Decently: Is the Market Following Strong Financials?

Most readers would already know that Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) stock increased by 4.3% over the past month. 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 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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

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 Motor Oil (Hellas) Corinth Refineries is:

29% = €807m ÷ €2.8b (Based on the trailing twelve months to December 2023).

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 €0.29 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. 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.

A Side By Side comparison of Motor Oil (Hellas) Corinth Refineries' Earnings Growth And 29% ROE

First thing first, we like that Motor Oil (Hellas) Corinth Refineries has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 15% which is quite remarkable. Under the circumstances, Motor Oil (Hellas) Corinth Refineries' considerable five year net income growth of 41% was to be expected.

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 an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. 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 to shareholders is 18%, which is quite low. This implies that the company is retaining 82% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

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 44% over the next three years. Accordingly, the expected increase in the payout ratio explains the expected decline in the company's ROE to 9.6%, over the same period.

Conclusion

On the whole, we feel that Motor Oil (Hellas) Corinth Refineries' performance has been quite good. 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. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.