Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) has had a rough three months with its share price down 5.5%. 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 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Do You Calculate Return On Equity?

The formula for ROE 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:

23% = Ft197b ÷ Ft840b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every HUF1 worth of equity, the company was able to earn HUF0.23 in profit.

View our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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 23% ROE

To begin with, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság seems to have a respectable ROE. On comparing with the average industry ROE of 12% the company's ROE looks pretty remarkable. This certainly adds some context to Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's exceptional 31% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. 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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's growth is quite high when compared to the industry average growth of 9.7% in the same period, which is great to see.

Earnings growth is an important metric to consider when valuing a stock. 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. What is MTELEKOM worth today? The intrinsic value infographic in our free research report helps visualize whether MTELEKOM is currently mispriced by the market.

Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság Using Its Retained Earnings Effectively?

The three-year median payout ratio for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is 44%, which is moderately low. The company is retaining the remaining 56%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is reinvesting its earnings efficiently.

Additionally, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság 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. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 73% over the next three years. Regardless, the ROE is not expected to change much for the company despite the higher expected payout ratio.

Summary

Overall, we are quite pleased with Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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

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.