Stock Futures Today – Has Kuehne + Nagel International AG’s (VTX:KNIN) Impressive Stock Performance Got Anything to Do With Its Fundamentals?
Most readers would already be aware that Kuehne + Nagel International’s (VTX:KNIN) stock increased significantly by 24% over the past three months. Given that stock prices are usually aligned with a company’s financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Kuehne + Nagel International’s ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Kuehne + Nagel International
How Do You Calculate Return On Equity?
ROE 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 Kuehne + Nagel International is:
33% = CHF789m ÷ CHF2.4b (Based on the trailing twelve months to December 2020).
The ‘return’ is the yearly profit. That means that for every CHF1 worth of shareholders’ equity, the company generated CHF0.33 in profit.
What Has ROE Got To Do With Earnings Growth?
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.
A Side By Side comparison of Kuehne + Nagel International’s Earnings Growth And 33% ROE
First thing first, we like that Kuehne + Nagel International has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 7.8% also doesn’t go unnoticed by us. Despite this, Kuehne + Nagel International’s five year net income growth was quite low averaging at only 2.6%. This is interesting as the high returns should mean that the company has the ability to generate high growth but for some reason, it hasn’t been able to do so. A few likely reasons why this could happen is that the company could have a high payout ratio or the business has allocated capital poorly, for instance.
Next, on comparing with the industry net income growth, we found that Kuehne + Nagel International’s reported growth was lower than the industry growth of 12% in the same period, which is not something we like to see.
(Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. Has the market priced in the future outlook for KNIN? You can find out in our latest intrinsic value infographic research report.
Is Kuehne + Nagel International Making Efficient Use Of Its Profits?
With a high three-year median payout ratio of 89% (or a retention ratio of 11%), most of Kuehne + Nagel International’s profits are being paid to shareholders. This definitely contributes to the low earnings growth seen by the company.
Additionally, Kuehne + Nagel International has paid dividends over a period of at least ten years, which means that the company’s management is determined to pay dividends even if it means little to no earnings growth. Upon studying the latest analysts’ consensus data, we found that the company’s future payout ratio is expected to drop to 66% over the next three years. However, the company’s ROE is not expected to change by much despite the lower expected payout ratio.
Summary
In total, it does look like Kuehne + Nagel International has some positive aspects to its business. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return. Investors could have benefitted from the high ROE, had the company been reinvesting more of its earnings. As discussed earlier, the company is retaining a small portion of its profits. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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.
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This article by Simply Wall St is general in nature. 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.
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Stock Futures Today – Has Kuehne + Nagel International AG’s (VTX:KNIN) Impressive Stock Performance Got Anything to Do With Its Fundamentals?
