Is Weakness In Sciuker Frames S.p.A. (BIT:SCK) Stock A Sign That The Market Could be Wrong Given Its Strong Financial Prospects?

Sciuker Frames (BIT:SCK) has had a rough three months with its share price down 37%. 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. Particularly, we will be paying attention to Sciuker Frames' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Sciuker Frames

How To 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 Sciuker Frames is:

31% = €20m ÷ €65m (Based on the trailing twelve months to June 2023).

The 'return' refers to a company's earnings over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.31.

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.

Sciuker Frames' Earnings Growth And 31% ROE

Firstly, we acknowledge that Sciuker Frames has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 17% which is quite remarkable. So, the substantial 67% net income growth seen by Sciuker Frames over the past five years isn't overly surprising.

Next, on comparing with the industry net income growth, we found that Sciuker Frames' growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.

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

Is Sciuker Frames Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 73% (implying that it keeps only 27% of profits) for Sciuker Frames suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, Sciuker Frames has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with Sciuker Frames' performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. 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. 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.