Consumer Durables News

Is The Market Following Hermès International Société en commandite par actions’ Strong Fundamentals?


Hermès International Société en commandite par actions’ (EPA:RMS) stock is up by a considerable 26% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Hermès International Société en commandite par actions’ ROE in this article.

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.

See our latest analysis for Hermès International Société en commandite par actions

How Is ROE Calculated?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Hermès International Société en commandite par actions is:

28% = €2.9b ÷ €10b (Based on the trailing twelve months to June 2022).

The ‘return’ is the profit over the last twelve months. So, this means that for every €1 of its shareholder’s investments, the company generates a profit of €0.28.

What Is The Relationship Between ROE And Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

Hermès International Société en commandite par actions’ Earnings Growth And 28% ROE

First thing first, we like that Hermès International Société en commandite par actions has an impressive ROE. Further, even comparing with the industry average if 28%, the company’s ROE is quite respectable. Therefore, it looks like the high ROE is what probably supported Hermès International Société en commandite par actions’ modest 17% growth over the past five years.

As a next step, we compared Hermès International Société en commandite par actions’ net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 16% in the same period.

ENXTPA:RMS Past Earnings Growth January 15th 2023

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. One 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 prospects. So, you may want to check if Hermès International Société en commandite par actions is trading on a high P/E or a low P/E, relative to its industry.

Is Hermès International Société en commandite par actions Making Efficient Use Of Its Profits?

Hermès International Société en commandite par actions has a three-year median payout ratio of 32%, which implies that it retains the remaining 68% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Moreover, Hermès International Société en commandite par actions is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Looking at the current analyst consensus data, we can see that the company’s future payout ratio is expected to rise to 39% over the next three years. However, the company’s ROE is not expected to change by much despite the higher expected payout ratio.

Conclusion

In total, we are pretty happy with Hermès International Société en commandite par actions’ performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Valuation is complex, but we’re helping make it simple.

Find out whether Hermès International Société en commandite par actions is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



Source link