DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

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

Mon, Feb 26, 2024, 9:09 PM 4 min read

It is hard to get excited after looking at DATA MODUL Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) recent performance, when its stock has declined 16% 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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. 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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen

How Is ROE Calculated?

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 DATA MODUL Produktion und Vertrieb von elektronischen Systemen is:

12% = €17m ÷ €143m (Based on the trailing twelve months to September 2023).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.12 in profit.

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.

DATA MODUL Produktion und Vertrieb von elektronischen Systemen's Earnings Growth And 12% ROE

To begin with, DATA MODUL Produktion und Vertrieb von elektronischen Systemen seems to have a respectable ROE. Especially when compared to the industry average of 8.3% the company's ROE looks pretty impressive. This certainly adds some context to DATA MODUL Produktion und Vertrieb von elektronischen Systemen's decent 11% net income growth seen over the past five years.

We then compared DATA MODUL Produktion und Vertrieb von elektronischen Systemen'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 1.0% in the same 5-year period.

past-earnings-growth — XTRA:DAM Past Earnings Growth February 27th 2024

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about DATA MODUL Produktion und Vertrieb von elektronischen Systemen's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is DATA MODUL Produktion und Vertrieb von elektronischen Systemen Making Efficient Use Of Its Profits?

DATA MODUL Produktion und Vertrieb von elektronischen Systemen has a low three-year median payout ratio of 4.6%, meaning that the company retains the remaining 95% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Besides, DATA MODUL Produktion und Vertrieb von elektronischen Systemen 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 is expected to drop to 2.1% over the next three years. However, the company's ROE is not expected to change by much despite the lower expected payout ratio.

Conclusion

Overall, we are quite pleased with DATA MODUL Produktion und Vertrieb von elektronischen Systemen'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. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.