Österreichische Post AG (VIE:POST) financials are too murky to relate to current share price momentum: What does the stock hold?
Österreichische Post (VIE:POST) has had a strong run in the stock market with a significant 11% rise in its stock over the past month. However, we decided to pay attention to the fundamentals of the company which do not seem to give a clear indication of the financial health of the company. Specifically, we decided to study the ROE of Österreichische Post in this article.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simpler terms, it measures a company’s profitability relative to equity.
See our latest analysis for Österreichische Post
How do you calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Österreichische Post is:
20% = €139m ÷ €694m (based on the last twelve months until March 2022).
The “yield” is the profit of the last twelve months. Another way to think about this is that for every €1 of equity, the company was able to make €0.20 of profit.
What is the relationship between ROE and earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of those earnings the company reinvests or “keeps”, and how effectively it does so, we are then able to gauge a company’s earnings growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
Profit growth and 20% ROE of Österreichische Post
For starters, Österreichische Post seems to have a respectable ROE. Even when compared to the industry average of 22%, the company’s ROE looks pretty decent. However, while Österreichische Post has a fairly respectable ROE, its five-year net income decline rate was 3.8%. Based on this, we believe that there might be other reasons which have not been discussed so far in this article which might hinder the growth of the business. For example, the company pays a large portion of its profits in the form of dividends or faces competitive pressures.
However, when we compared the growth of Österreichische Post to that of the industry, we found that, although the company’s profits declined, the industry recorded an 18% profit growth over the same period. . It’s quite worrying.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. Is Österreichische Post correctly valued compared to other companies? These 3 assessment metrics might help you decide.
Does Österreichische Post use its profits efficiently?
With a high three-year median payout ratio of 96% (implying 4.5% of profits are retained), most of Österreichische Post’s profits are paid out to shareholders, which explains the company’s declining profits. ‘company. With only a little reinvested in the business, earnings growth would obviously be weak or non-existent.
Furthermore, Österreichische Post has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of business growth. company. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to remain stable at 88%. As a result, forecasts suggest that the future ROE of Österreichische Post will be 21%, again similar to the current ROE.
Overall, we have mixed feelings about Österreichische Post. Despite the high ROE, the company is showing disappointing earnings growth, due to its low rate of reinvestment in its business. That said, we studied the latest analyst forecasts and found that while the company has cut earnings in the past, analysts expect earnings to increase in the future. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.