Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) Stock Is Going Strong: Is the Market Following Fundamentals?

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) has had a great run on the share market with its stock up by a significant 16% over the last three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

How Is ROE Calculated?

ROE can be calculated by using the formula:

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:

18% = Ft150b ÷ Ft827b (Based on the trailing twelve months to September 2024).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every HUF1 worth of equity, the company was able to earn HUF0.18 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.

A Side By Side comparison of Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's Earnings Growth And 18% ROE

To start with, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's ROE looks acceptable. Especially when compared to the industry average of 13% the company's ROE looks pretty impressive. Probably as a result of this, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság was able to see an impressive net income growth of 24% over the last five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

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 9.3% 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. Doing so will help them establish if the stock's future looks promising or ominous. Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság Efficiently Re-investing Its Profits?

The three-year median payout ratio for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is 37%, which is moderately low. The company is retaining the remaining 63%. So it seems that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.

Besides, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has been paying dividends over a period of nine 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 70% 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. 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, 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.

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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.