Has Danieli & C. Officine Meccaniche S.p.A.'s (BIT:DAN) Impressive Stock Performance Got Anything to Do With Its Fundamentals?

Danieli & C. Officine Meccaniche (BIT:DAN) has had a great run on the share market with its stock up by a significant 31% over the last three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Danieli & C. Officine Meccaniche'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

How Do You Calculate Return On Equity?

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 Danieli & C. Officine Meccaniche is:

9.8% = €269m ÷ €2.8b (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. That means that for every €1 worth of shareholders' equity, the company generated €0.10 in profit.

See our latest analysis for Danieli & C. Officine Meccaniche

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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 Danieli & C. Officine Meccaniche's Earnings Growth And 9.8% ROE

On the face of it, Danieli & C. Officine Meccaniche's ROE is not much to talk about. However, its ROE is similar to the industry average of 9.8%, so we won't completely dismiss the company. Particularly, the exceptional 31% net income growth seen by Danieli & C. Officine Meccaniche over the past five years is pretty remarkable. Considering the moderately low ROE, it is quite possible that there might be some 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.

As a next step, we compared Danieli & C. Officine Meccaniche'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 23%.

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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Danieli & C. Officine Meccaniche fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Danieli & C. Officine Meccaniche Making Efficient Use Of Its Profits?

Danieli & C. Officine Meccaniche's ' three-year median payout ratio is on the lower side at 9.2% implying that it is retaining a higher percentage (91%) of its profits. So it looks like Danieli & C. Officine Meccaniche is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Danieli & C. Officine Meccaniche 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 10.0%.

Conclusion

On the whole, we do feel that Danieli & C. Officine Meccaniche has some positive attributes. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.