Does the impressive stock market performance of Schaffner Holding AG (VTX: SAHN) have something to do with its fundamentals?

Most readers already know that the share of Schaffner Holding (VTX: SAHN) has risen significantly by 32% in the past three months. As most know, fundamentals typically guide long-term market price movements, so we decided to look at the company’s key financial metrics today to see if they have a role to play in the recent one. price movement. In this article, we have decided to focus on the ROE of Schaffner Holding.

Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.

See our latest analysis for Schaffner Holding

How do you calculate return on equity?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, on the basis of the above formula, the ROE of Schaffner Holding is:

11% = CHF 6.7 million ÷ CHF 63 million (based on the last twelve months up to March 2021).

The “return” is the annual profit. One way to conceptualize this is that for every CHF1 of share capital it has, the company has made a profit of CHF 0.11.

Why is ROE important for profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. Assuming everything is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics. .

Schaffner Holding profit growth and ROE of 11%

For starters, Schaffner Holding appears to have a respectable ROE. Regardless, the company’s ROE is still well below the industry average of 14%. After further research, we found that Schaffner Holding’s net income growth of 3.5% over the past five years is quite low. Remember, the business has a decent ROE to start with, just that it’s below the industry average. So there could be other reasons why earnings growth is weak. For example, the company may have a high payout ratio or the company may have misallocated capital, for example.

Then, comparing with the growth in net income of the sector, we found that the reported growth of Schaffner Holding was lower than the growth of the sector by 7.5% during the same period, which is not something that we love to see.

SWX: SAHN Past Profit Growth June 24, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check whether Schaffner Holding is trading high P / E or low P / E, relative to its industry.

Does Schaffner Holding use its profits efficiently?

Despite a moderate three-year median payout ratio of 46% (implying that the company keeps the remaining 54% of its revenue), Schaffner Holding’s profit growth was quite weak. Therefore, there could be other reasons for the lack in this regard. For example, the business could be in decline.

In addition, Schaffner Holding has paid dividends over a period of at least ten years, which suggests that sustaining dividend payments is much more important to management, even if it comes at the expense of corporate growth. business.

summary

Overall, we think Schaffner Holding has positive attributes. However, we are disappointed to see a lack of earnings growth despite moderate ROE and a high reinvestment rate. We believe there could be external factors that could negatively impact the business. That said, the latest forecast from industry analysts shows that the company’s earnings are expected to pick up. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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