Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

It is hard to get excited after looking at Coca-Cola FEMSA. de's (NYSE:KOF) recent performance, when its stock has declined 8.6% over the past week. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Coca-Cola FEMSA. de's ROE today.

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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You Calculate Return On Equity?

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 Coca-Cola FEMSA. de is:

16% = Mex$25b ÷ Mex$160b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.16 in profit.

Check out our latest analysis for Coca-Cola FEMSA. de

What Is The Relationship Between ROE And 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.

Coca-Cola FEMSA. de's Earnings Growth And 16% ROE

At first glance, Coca-Cola FEMSA. de seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 19%. Consequently, this likely laid the ground for the decent growth of 17% seen over the past five years by Coca-Cola FEMSA. de.

Next, on comparing with the industry net income growth, we found that Coca-Cola FEMSA. de's growth is quite high when compared to the industry average growth of 7.6% 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. Is Coca-Cola FEMSA. de fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Coca-Cola FEMSA. de Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 64% (or a retention ratio of 36%) for Coca-Cola FEMSA. de suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Moreover, Coca-Cola FEMSA. de 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. 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 55%. Accordingly, forecasts suggest that Coca-Cola FEMSA. de's future ROE will be 18% which is again, similar to the current ROE.

Conclusion

In total, we are pretty happy with Coca-Cola FEMSA. de'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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.