Is De'Longhi S.p.A.'s (BIT:DLG) Recent Stock Performance Tethered To Its Strong Fundamentals?

De'Longhi (BIT:DLG) has had a great run on the share market with its stock up by a significant 12% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study De'Longhi'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. Put another way, it reveals the company's success at turning shareholder investments into profits.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 De'Longhi is:

15% = €335m ÷ €2.2b (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.15.

View our latest analysis for De'Longhi

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

De'Longhi's Earnings Growth And 15% ROE

At first glance, De'Longhi seems to have a decent ROE. Especially when compared to the industry average of 8.7% the company's ROE looks pretty impressive. Probably as a result of this, De'Longhi was able to see a decent growth of 5.7% over the last five years.

As a next step, we compared De'Longhi's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 5.7% in the same period.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is DLG fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is De'Longhi Making Efficient Use Of Its Profits?

With a three-year median payout ratio of 40% (implying that the company retains 60% of its profits), it seems that De'Longhi is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, De'Longhi has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 46%. Accordingly, forecasts suggest that De'Longhi's future ROE will be 15% which is again, similar to the current ROE.

Summary

In total, we are pretty happy with De'Longhi'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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.