Wallenius Wilhelmsen ASA's (OB:WAWI) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that Wallenius Wilhelmsen's (OB:WAWI) stock increased significantly by 12% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Wallenius Wilhelmsen's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Is ROE Calculated?

Return on equity 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 Wallenius Wilhelmsen is:

36% = US$1.2b ÷ US$3.3b (Based on the trailing twelve months to June 2025).

The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each NOK1 of shareholders' capital it has, the company made NOK0.36 in profit.

View our latest analysis for Wallenius Wilhelmsen

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.

A Side By Side comparison of Wallenius Wilhelmsen's Earnings Growth And 36% ROE

To begin with, Wallenius Wilhelmsen has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 19% which is quite remarkable. So, the substantial 51% net income growth seen by Wallenius Wilhelmsen over the past five years isn't overly surprising.

We then compared Wallenius Wilhelmsen's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 38% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. 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. If you're wondering about Wallenius Wilhelmsen's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Wallenius Wilhelmsen Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 53% (implying that it keeps only 47% of profits) for Wallenius Wilhelmsen suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Wallenius Wilhelmsen is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 55% of its profits over the next three years. Regardless, Wallenius Wilhelmsen's ROE is speculated to decline to 19% despite there being no anticipated change in its payout ratio.

Conclusion

Overall, we are quite pleased with Wallenius Wilhelmsen's 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. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.