Infrastrutture Wireless Italiane S.p.A. (BIT:INW) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

Infrastrutture Wireless Italiane's (BIT:INW) stock is up by a considerable 26% over the past three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Specifically, we decided to study Infrastrutture Wireless Italiane's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Infrastrutture Wireless Italiane

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 Infrastrutture Wireless Italiane is:

6.6% = €293m ÷ €4.5b (Based on the trailing twelve months to December 2022).

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 €0.07.

Why Is ROE Important For 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.

Infrastrutture Wireless Italiane's Earnings Growth And 6.6% ROE

On the face of it, Infrastrutture Wireless Italiane's ROE is not much to talk about. Next, when compared to the average industry ROE of 20%, the company's ROE leaves us feeling even less enthusiastic. Infrastrutture Wireless Italiane was still able to see a decent net income growth of 15% over the past five years. So, the growth in the company's earnings could probably have been caused by other variables. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing Infrastrutture Wireless Italiane's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 17% in the same period.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Infrastrutture Wireless Italiane fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Infrastrutture Wireless Italiane Efficiently Re-investing Its Profits?

The really high three-year median payout ratio of 130% for Infrastrutture Wireless Italiane suggests that the company is paying its shareholders more than what it is earning. However, this hasn't really hampered its ability to grow as we saw earlier. That being said, the high payout ratio could be worth keeping an eye on in case the company is unable to keep up its current growth momentum. To know the 2 risks we have identified for Infrastrutture Wireless Italiane visit our risks dashboard for free.

Additionally, Infrastrutture Wireless Italiane has paid dividends over a period of seven 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 110%. Regardless, the future ROE for Infrastrutture Wireless Italiane is predicted to rise to 11% despite there being not much change expected in its payout ratio.

Summary

In total, we're a bit ambivalent about Infrastrutture Wireless Italiane's performance. While the company has posted impressive earnings growth, its poor ROE and low earnings retention makes us doubtful if that growth could continue, if by any chance the business is faced with any sort of risk. 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. 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.