4imprint Group plc's (LON:FOUR) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

editorial-team@simplywallst.com (Simply Wall St)

Wed, May 21, 2025, 2:20 AM 4 min read

It is hard to get excited after looking at 4imprint Group's (LON:FOUR) recent performance, when its stock has declined 36% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to 4imprint Group'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?

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 4imprint Group is:

63% = US$117m ÷ US$185m (Based on the trailing twelve months to December 2024).

The 'return' is the income the business earned over the last year. That means that for every £1 worth of shareholders' equity, the company generated £0.63 in profit.

View our latest analysis for 4imprint Group

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.

A Side By Side comparison of 4imprint Group's Earnings Growth And 63% ROE

First thing first, we like that 4imprint Group has an impressive ROE. Secondly, even when compared to the industry average of 12% the company's ROE is quite impressive. Under the circumstances, 4imprint Group's considerable five year net income growth of 40% was to be expected.

We then compared 4imprint Group'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 29% in the same 5-year period.

past-earnings-growth — LSE:FOUR Past Earnings Growth May 21st 2025

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is 4imprint Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is 4imprint Group Efficiently Re-investing Its Profits?

4imprint Group's significant three-year median payout ratio of 56% (where it is retaining only 44% of its income) suggests that the company has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

Moreover, 4imprint Group 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 61%. As a result, 4imprint Group's ROE is not expected to change by much either, which we inferred from the analyst estimate of 52% for future ROE.

Conclusion

In total, we are pretty happy with 4imprint Group's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. 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.