Is the recent performance of ESOTIQ & Henderson SA (WSE: EAH) stock driven by its attractive financial outlook?


Most readers already know that shares of ESOTIQ & Henderson (WSE: EAH) have risen significantly by 68% in the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. In particular, we will pay particular attention to the ROE of ESOTIQ & Henderson today.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.

Check out our latest review for ESOTIQ & Henderson

How is the ROE calculated?

Return on equity can be calculated using the formula:

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

So, based on the above formula, the ROE for ESOTIQ & Henderson is:

24% = zł15m zł62m (Based on the last twelve months up to September 2021).

The “return” is the profit of the last twelve months. One way to conceptualize this is that for every PLN1 of share capital it has, the company has made a profit of PLN0.24.

What does ROE have to do with profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future 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. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

ESOTIQ & Henderson profit growth and 24% ROE

First, we recognize that ESOTIQ & Henderson has a significantly high ROE. Even compared to the industry average of 20%, the company’s ROE is pretty decent. Therefore, it might not be wrong to say that the impressive 36% five-year net income growth seen by ESOTIQ & Henderson was likely achieved due to the high ROE.

Next, comparing with the industry’s net income growth, we found that the growth figure reported by ESOTIQ & Henderson compares quite favorably with the industry average, which shows a 14% decline over the course of the same period.

WSE: EAH Growth in past profits as of December 1, 2021

The basis for attaching value to a business is, to a large extent, related to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. In doing so, he will have an idea if the action is heading towards clear blue waters or swampy waters ahead. If you are wondering about the valuation of ESOTIQ & Henderson, take a look at this gauge of its price / earnings ratio, compared to its sector.

Are ESOTIQ & Henderson Efficiently Reinvesting Its Profits?

Although the company has paid part of its dividend in the past, it currently does not pay any dividends. This is probably what explains the high number of profit growth discussed above.

Conclusion

All in all, we are quite satisfied with the performance of ESOTIQ & Henderson. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive profit growth. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Let’s not forget that trading risk is also one of the factors that affect the stock price. So this is also an important area that investors should pay attention to before making a decision on a business. To know the 2 risks that we have identified for ESOTIQ & Henderson, visit our free risk dashboard.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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 documents. Simply Wall St has no position in any of the stocks mentioned.

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