Will Weakness in Koncar - distributivni i specijalni transformatori d.d.'s (ZGSE:KODT) Stock Prove Temporary Given Strong Fundamentals?

It is hard to get excited after looking at Koncar - distributivni i specijalni transformatori d.d's (ZGSE:KODT) recent performance, when its stock has declined 8.4% over the past month. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Koncar - distributivni i specijalni transformatori d.d's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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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 Koncar - distributivni i specijalni transformatori d.d is:

49% = €137m ÷ €282m (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.49.

Check out our latest analysis for Koncar - distributivni i specijalni transformatori d.d

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Koncar - distributivni i specijalni transformatori d.d's Earnings Growth And 49% ROE

To begin with, Koncar - distributivni i specijalni transformatori d.d has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 13% which is quite remarkable. Under the circumstances, Koncar - distributivni i specijalni transformatori d.d's considerable five year net income growth of 55% was to be expected.

As a next step, we compared Koncar - distributivni i specijalni transformatori d.d's 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 18%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Koncar - distributivni i specijalni transformatori d.d's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Koncar - distributivni i specijalni transformatori d.d Efficiently Re-investing Its Profits?

Koncar - distributivni i specijalni transformatori d.d has a three-year median payout ratio of 30% (where it is retaining 70% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Koncar - distributivni i specijalni transformatori d.d is reinvesting its earnings efficiently.

Additionally, Koncar - distributivni i specijalni transformatori d.d 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 30%. However, Koncar - distributivni i specijalni transformatori d.d's future ROE is expected to decline to 35% despite there being not much change anticipated in the company's payout ratio.

Summary

Overall, we are quite pleased with Koncar - distributivni i specijalni transformatori d.d's 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.