It's hard to get excited about AIXTRON's (ETR:AIXA) recent performance, with its share price down 33% in the past three months. But if you pay close attention, given how the market typically rewards companies with strong financial health, the company's strong financials could mean a higher share price over the long term. You may be wondering if that means something. In this article, we decided to focus on his ROE for AIXTRON.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company's shareholders.
Check out our latest analysis for AIXTRON.
How is ROE calculated?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, AIXTRON's ROE is:
19% = €145 million ÷ €778 million (based on the trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. One way he conceptualizes this is that for every €1 of shareholders' equity, the company made his €0.19 in profit.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain”. Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
A side-by-side comparison of AIXTRON's earnings growth and ROE of 19%
At first glance, AIXTRON appears to have a decent ROE. Moreover, his ROE for the company is in line with the industry average of 17%. This probably goes some way to explaining AIXTRON's impressive 32% growth in net income over the past five years, among other factors. However, there may also be other factors behind this growth. For example, a company with a low dividend payout ratio or a company with efficient management.
We then compared AIXTRON's net income growth to the industry and found that the company's growth is on par with the industry's average growth rate of 33% over the same five-year period.
Earnings growth is a big factor in stock valuation. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). That way, you'll know if the stock is headed for clear blue waters or if a swamp awaits. Is the market factoring in AIXA's future prospects? Find out in our latest Intrinsic Value infographic research report.
Is AIXTRON using its profits efficiently?
AIXTRON's median three-year payout ratio is 31% (retaining 69% of its earnings), which is neither too low nor too high. This suggests that the company's dividend is well covered, and given the high growth discussed above, AIXTRON appears to be reinvesting its earnings efficiently.
Additionally, AIXTRON has been paying dividends for three years. This means that the company is quite serious about sharing profits with shareholders. Based on the latest analyst forecasts, we find that the company's future dividend payout ratio over the next three years is expected to remain stable at 31%. Therefore, the company's future ROE is not expected to change much, with analysts forecasting it to be 19%.
summary
Overall, I'm pretty satisfied with AIXTRON's performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page for the company .
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
