Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) Recent Stock Performance Tethered To Its Strong Fundamentals?

Most readers would already be aware that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) stock increased significantly by 15% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is:

13% = Ft108b ÷ Ft805b (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. So, this means that for every HUF1 of its shareholder's investments, the company generates a profit of HUF0.13.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's Earnings Growth And 13% ROE

To start with, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 13%. Consequently, this likely laid the ground for the decent growth of 18% seen over the past five years by Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság.

As a next step, we compared Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság'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 12%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for MTELEKOM? You can find out in our latest intrinsic value infographic research report.

Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság Making Efficient Use Of Its Profits?

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has a three-year median payout ratio of 29%, which implies that it retains the remaining 71% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Besides, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has been paying dividends over a period of eight years. This shows that the company is committed to sharing profits with its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 68% over the next three years. However, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's future ROE is expected to rise to 21% despite the expected increase in the company's payout ratio. We infer that there could be other factors that could be driving the anticipated growth in the company's ROE.

Conclusion

Overall, we are quite pleased with Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság'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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com