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SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's (HMSE:NEP) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) has had a rough three months with its share price down 13%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft

How Do You Calculate Return On Equity?

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 SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is:

14% = €23m ÷ €168m (Based on the trailing twelve months to June 2022).

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 €0.14 in profit.

What Has ROE Got To Do With 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.

SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's Earnings Growth And 14% ROE

At first glance, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft seems to have a decent ROE. Even so, when compared with the average industry ROE of 20%, we aren't very excited. Still, we can see that SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has seen a remarkable net income growth of 52% over the past five years. Therefore, there could be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently. Bear in mind, the company does have a respectable ROE. It is just that the industry ROE is higher. So this certainly also provides some context to the high earnings growth seen by the company.

Next, on comparing with the industry net income growth, we found that SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's growth is quite high when compared to the industry average growth of 36% in the same period, which is great to see.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 85% (implying that it keeps only 15% of profits) for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft is determined to keep sharing its profits with shareholders which we infer from its long history of seven years of paying a dividend.

Summary

On the whole, we do feel that SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has some positive attributes. Especially the substantial growth in earnings backed by a decent ROE. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. So it may be worth checking this free detailed graph of SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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