PRO DV AG (ETR:PDA) Stock Soars But Financial Data Looks Inconsistent: Will the Uptrend Continue?

PRO DV (ETR:PDA) stock is up 15% over the past month. But the company’s key financial indicators seem to differ across the board, leading us to wonder whether the company’s current share price momentum can be sustained or not. In particular, we’ll be paying close attention to PRO DV’s ROE today.

Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In simple terms, it is used to assess the profitability of a company in relation to its equity.

Check out our latest review for PRO DV

How to calculate return on equity?

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 PRO DV is:

4.7% = €26,000 ÷ €548,000 (based on the last twelve months to June 2021).

The “return” is the annual profit. This therefore means that for each €1 of investment by its shareholder, the company generates a profit of €0.05.

What is the relationship between ROE and earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s 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.

Growth in PRO DV earnings and ROE of 4.7%

When you first watch it, PRO DV’s ROE doesn’t look so appealing. Then, compared to the industry average ROE of 14%, the company’s ROE leaves us even less excited. For this reason, PRO DV’s 6.9% decline in net income over five years is not surprising given its low ROE. However, there could also be other factors leading to lower income. For example, the company has a very high payout rate or faces competitive pressures.

That being said, we benchmarked PRO DV’s performance with the industry and were concerned when we found that while the company had reduced profits, the industry had increased profits at a rate of 17% over the course of the same period.

XTRA:PDA Past Earnings Growth February 18, 2022

Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Is PRO DV well valued compared to other companies? these 3 evaluation measures could help you decide.

Does PRO DV use its profits effectively?

PRO DV pays no dividends, which means the company keeps all of its profits, which makes us wonder why it keeps its profits if it can’t use them to grow its business. So there could be other factors at play here that could potentially impede growth. For example, the company had to deal with headwinds.

Conclusion

Overall, we have mixed feelings about PRO DV. Although the company has a high earnings retention rate, its low rate of return is likely hampering its earnings growth. In conclusion, we would proceed with caution with this business and one way to do that would be to review the risk profile of the business. To learn about the 4 risks we have identified for PRO DV, visit our risk dashboard for free.

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.

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