Is TE Connectivity plc's (NYSE:TEL) Latest Stock Performance A Reflection Of Its Financial Health?

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

Sun, May 11, 2025, 6:48 AM 4 min read

TE Connectivity's (NYSE:TEL) stock is up by a considerable 19% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to TE Connectivity's ROE today.

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 Is ROE Calculated?

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 TE Connectivity is:

11% = US$1.4b ÷ US$12b (Based on the trailing twelve months to March 2025).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.11 in profit.

View our latest analysis for TE Connectivity

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

TE Connectivity's Earnings Growth And 11% ROE

To start with, TE Connectivity's ROE looks acceptable. And on comparing with the industry, we found that the the average industry ROE is similar at 10%. This probably goes some way in explaining TE Connectivity's significant 25% net income growth over the past five years amongst other factors. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared TE Connectivity'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 11% in the same 5-year period.

past-earnings-growth — NYSE:TEL Past Earnings Growth May 11th 2025

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. What is TEL worth today? The intrinsic value infographic in our free research report helps visualize whether TEL is currently mispriced by the market.

Is TE Connectivity Efficiently Re-investing Its Profits?

TE Connectivity has a three-year median payout ratio of 30% (where it is retaining 70% 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 TE Connectivity is reinvesting its earnings efficiently.

Besides, TE Connectivity 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 30%. Still, forecasts suggest that TE Connectivity's future ROE will rise to 21% even though the the company's payout ratio is not expected to change by much.

Conclusion

Overall, we are quite pleased with TE Connectivity's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.