Is Zignago Vetro S.p.A.'s (BIT:ZV) Latest Stock Performance A Reflection Of Its Financial Health?

Zignago Vetro (BIT:ZV) has had a great run on the share market with its stock up by a significant 5.9% over the last week. 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 Zignago Vetro's ROE in this article.

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.

Check out our latest analysis for Zignago Vetro

How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Zignago Vetro is:

17% = €59m ÷ €354m (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.17 in profit.

Why Is ROE Important For Earnings Growth?

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

Zignago Vetro's Earnings Growth And 17% ROE

To start with, Zignago Vetro's ROE looks acceptable. On comparing with the average industry ROE of 7.8% the company's ROE looks pretty remarkable. Probably as a result of this, Zignago Vetro was able to see a decent growth of 18% over the last five years.

Next, on comparing with the industry net income growth, we found that Zignago Vetro's growth is quite high when compared to the industry average growth of 13% in the same period, which is great to see.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future outlook for ZV? You can find out in our latest intrinsic value infographic research report.

Is Zignago Vetro Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 57% (or a retention ratio of 43%) for Zignago Vetro suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Zignago Vetro 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 66%. As a result, Zignago Vetro's ROE is not expected to change by much either, which we inferred from the analyst estimate of 19% for future ROE.

Conclusion

In total, we are pretty happy with Zignago Vetro's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to 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.

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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.