It is hard to get excited after looking at Springer Nature KGaA’s (ETR:SPG) recent performance, when its stock has declined 31% over the past three months. However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Springer Nature KGaA’s ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
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The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Springer Nature KGaA is:
3.8% = €69m ÷ €1.8b (Based on the trailing twelve months to December 2024).
The ‘return’ is the income the business earned over the last year. That means that for every €1 worth of shareholders’ equity, the company generated €0.04 in profit.
Check out our latest analysis for Springer Nature KGaA
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
When you first look at it, Springer Nature KGaA’s ROE doesn’t look that attractive. Next, when compared to the average industry ROE of 5.9%, the company’s ROE leaves us feeling even less enthusiastic. Springer Nature KGaA was still able to see a decent net income growth of 17% over the past five years. We reckon that there could be other factors at play here. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Springer Nature KGaA’s growth is quite high when compared to the industry average growth of 0.6% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. Is Springer Nature KGaA fairly valued compared to other companies? These 3 valuation measures might help you decide.