Stock Futures – Olvi Oyj’s (HEL:OLVAS) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?
Olvi Oyj’s (HEL:OLVAS) stock up by 4.7% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Olvi Oyj’s ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Olvi Oyj
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 Olvi Oyj is:
15% = €41m ÷ €268m (Based on the trailing twelve months to December 2020).
The ‘return’ is the yearly profit. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.15 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
Olvi Oyj’s Earnings Growth And 15% ROE
To begin with, Olvi Oyj seems to have a respectable ROE. Further, the company’s ROE compares quite favorably to the industry average of 7.7%. This certainly adds some context to Olvi Oyj’s decent 9.6% net income growth seen over the past five years.
Next, on comparing with the industry net income growth, we found that Olvi Oyj’s growth is quite high when compared to the industry average growth of 5.2% in the same period, which is great to see.
Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for OLVAS? You can find out in our latest intrinsic value infographic research report.
Is Olvi Oyj Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 47% (implying that the company retains 53% of its profits), it seems that Olvi Oyj is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that’s well covered.
Moreover, Olvi Oyj 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. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 48% of its profits over the next three years. Therefore, the company’s future ROE is also not expected to change by much with analysts predicting an ROE of 17%.
Overall, we are quite pleased with Olvi Oyj’s performance. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. We also studied the latest analyst forecasts and found that the company’s earnings growth is expected be similar to its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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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