Is Berentzen-Gruppe Aktiengesellschaft's (ETR:BEZ) Recent Performance Underpinned By Weak Financials?

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

Sat, Apr 27, 2024, 1:06 AM 4 min read

Berentzen-Gruppe (ETR:BEZ) has had a rough three months with its share price down 5.0%. Given that stock prices are usually driven by a company’s fundamentals over the long term, which in this case look pretty weak, we decided to study the company's key financial indicators. In this article, we decided to focus on Berentzen-Gruppe's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Berentzen-Gruppe

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 Berentzen-Gruppe is:

1.8% = €865k ÷ €47m (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.02.

What Has ROE Got To Do With 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.

Berentzen-Gruppe's Earnings Growth And 1.8% ROE

As you can see, Berentzen-Gruppe's ROE looks pretty weak. Even compared to the average industry ROE of 7.3%, the company's ROE is quite dismal. For this reason, Berentzen-Gruppe's five year net income decline of 24% is not surprising given its lower ROE. We reckon that there could also be other factors at play here. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

As a next step, we compared Berentzen-Gruppe's performance with the industry and found thatBerentzen-Gruppe's performance is depressing even when compared with the industry, which has shrunk its earnings at a rate of 0.2% in the same period, which is a slower than the company.

past-earnings-growth — XTRA:BEZ Past Earnings Growth April 27th 2024

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. Doing so will help them establish if the stock's future looks promising or ominous. Is Berentzen-Gruppe fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Berentzen-Gruppe Efficiently Re-investing Its Profits?

With a high three-year median payout ratio of 68% (implying that 32% of the profits are retained), most of Berentzen-Gruppe's profits are being paid to shareholders, which explains the company's shrinking earnings. The business is only left with a small pool of capital to reinvest - A vicious cycle that doesn't benefit the company in the long-run. To know the 3 risks we have identified for Berentzen-Gruppe visit our risks dashboard for free.

Moreover, Berentzen-Gruppe has been paying dividends for eight years, which is a considerable amount of time, suggesting that management must have perceived that the shareholders prefer consistent dividends even though earnings have been shrinking. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 43% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 9.1%, over the same period.

Summary

In total, we would have a hard think before deciding on any investment action concerning Berentzen-Gruppe. Because the company is not reinvesting much into the business, and given the low ROE, it's not surprising to see the lack or absence of growth in its earnings. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow 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.