Is S.N. Nuclearelectrica S.A.'s (BVB:SNN) Latest Stock Performance A Reflection Of Its Financial Health?

S.N. Nuclearelectrica (BVB:SNN) has had a great run on the share market with its stock up by a significant 14% over the last three months. 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. In this article, we decided to focus on S.N. Nuclearelectrica's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for S.N. Nuclearelectrica

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 S.N. Nuclearelectrica is:

27% = RON2.8b ÷ RON11b (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. So, this means that for every RON1 of its shareholder's investments, the company generates a profit of RON0.27.

What Is The Relationship Between ROE And 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.

A Side By Side comparison of S.N. Nuclearelectrica's Earnings Growth And 27% ROE

Firstly, we acknowledge that S.N. Nuclearelectrica has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 9.8% which is quite remarkable. Under the circumstances, S.N. Nuclearelectrica's considerable five year net income growth of 45% was to be expected.

As a next step, we compared S.N. Nuclearelectrica's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 13%.

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is SNN worth today? The intrinsic value infographic in our free research report helps visualize whether SNN is currently mispriced by the market.

Is S.N. Nuclearelectrica Efficiently Re-investing Its Profits?

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

Moreover, S.N. Nuclearelectrica is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 48%. However, S.N. Nuclearelectrica's future ROE is expected to decline to 19% despite there being not much change anticipated in the company's payout ratio.

Conclusion

On the whole, we feel that S.N. Nuclearelectrica's performance has been quite good. 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.