Does The Market Have A Low Tolerance For EuroGroup Laminations S.p.A.'s (BIT:EGLA) Mixed Fundamentals?

With its stock down 11% over the past three months, it is easy to disregard EuroGroup Laminations (BIT:EGLA). It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Fundamentals usually dictate market outcomes so it makes sense to study the company's financials. In this article, we decided to focus on EuroGroup Laminations' ROE.

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 To 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 EuroGroup Laminations is:

3.9% = €18m ÷ €447m (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.04 in profit.

Check out our latest analysis for EuroGroup Laminations

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. 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.

A Side By Side comparison of EuroGroup Laminations' Earnings Growth And 3.9% ROE

It is quite clear that EuroGroup Laminations' ROE is rather low. Even compared to the average industry ROE of 12%, the company's ROE is quite dismal. Accordingly, EuroGroup Laminations' low net income growth of 2.2% over the past five years can possibly be explained by the low ROE amongst other factors.

As a next step, we compared EuroGroup Laminations' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 14% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about EuroGroup Laminations''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is EuroGroup Laminations Efficiently Re-investing Its Profits?

EuroGroup Laminations has a low three-year median payout ratio of 21% (meaning, the company keeps the remaining 79% of profits) which means that the company is retaining more of its earnings. However, the low earnings growth number doesn't reflect this fact. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.

Additionally, EuroGroup Laminations started paying a dividend only recently. So it looks like the management must have perceived that shareholders favor dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 21%. However, EuroGroup Laminations' ROE is predicted to rise to 7.7% despite there being no anticipated change in its payout ratio.

Summary

Overall, we have mixed feelings about EuroGroup Laminations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.