AAK AB (publ.)'s (STO:AAK) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Most readers would already know that AAK AB (publ.)'s (STO:AAK) stock increased by 3.9% 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. In this article, we decided to focus on AAK AB (publ.)'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Do You 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 AAK AB (publ.) is:

18% = kr3.4b ÷ kr19b (Based on the trailing twelve months to September 2025).

The 'return' is the yearly profit. That means that for every SEK1 worth of shareholders' equity, the company generated SEK0.18 in profit.

See our latest analysis for AAK AB (publ.)

What Is The Relationship Between ROE And 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.

AAK AB (publ.)'s Earnings Growth And 18% ROE

At first glance, AAK AB (publ.) seems to have a decent ROE. Especially when compared to the industry average of 13% the company's ROE looks pretty impressive. Probably as a result of this, AAK AB (publ.) was able to see an impressive net income growth of 22% over the last five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing AAK AB (publ.)'s net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 20% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for AAK? You can find out in our latest intrinsic value infographic research report.

Is AAK AB (publ.) Using Its Retained Earnings Effectively?

AAK AB (publ.) has a three-year median payout ratio of 37% (where it is retaining 63% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like AAK AB (publ.) is reinvesting its earnings efficiently.

Besides, AAK AB (publ.) has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 38%. Accordingly, forecasts suggest that AAK AB (publ.)'s future ROE will be 18% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with AAK AB (publ.)'s performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. 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. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.