Most readers would already be aware that Wacker Neuson's (ETR:WAC) stock increased significantly by 50% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Wacker Neuson's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Wacker Neuson is:
5.5% = €81m ÷ €1.5b (Based on the trailing twelve months to September 2024).
The 'return' is the income the business earned over the last year. So, this means that for every €1 of its shareholder's investments, the company generates a profit of €0.05.
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Wacker Neuson's Earnings Growth And 5.5% ROE
At first glance, Wacker Neuson's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 10%. However, we we're pleasantly surprised to see that Wacker Neuson grew its net income at a significant rate of 20% in the last five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Wacker Neuson's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 17% in the same period.
XTRA:WAC Past Earnings Growth March 27th 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). Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for WAC? You can find out in our latest intrinsic value infographic research report.
Is Wacker Neuson Making Efficient Use Of Its Profits?
The three-year median payout ratio for Wacker Neuson is 45%, which is moderately low. The company is retaining the remaining 55%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Wacker Neuson is reinvesting its earnings efficiently.
Moreover, Wacker Neuson 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 52% of its profits over the next three years. Still, forecasts suggest that Wacker Neuson's future ROE will rise to 8.2% even though the the company's payout ratio is not expected to change by much.
Summary
In total, it does look like Wacker Neuson has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.
