Could the market be wrong about Tokmanni Group Oyj (HEL: TOKMAN) given its attractive financial outlook?

0

It’s hard to get excited after looking at the recent performance of Tokmanni Group Oyj (HEL: TOKMAN), when its stock has fallen 20% in the past three months. However, a closer look at his strong finances might get you to think again. Since fundamentals usually determine long-term market outcomes, the business is worth considering. Specifically, we decided to study the ROE of Tokmanni Group Oyj in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.

Discover our latest analysis for Tokmanni Group Oyj

How to calculate return on equity?

The return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, based on the above formula, the ROE of Tokmanni Group Oyj is:

41% = 79 million euros ÷ 196 million euros (based on the last twelve months up to June 2021).

The “return” is the amount earned after tax over the past twelve months. This means that for every € 1 of equity, the company generated € 0.41 in profit.

Why is ROE important for profit growth?

So far we’ve learned that ROE is a measure of a company’s profitability. We now need to assess the profits that the business is reinvesting or “withholding” for future growth, which then gives us an idea of ​​the growth potential of the business. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

Profit growth of Tokmanni Group Oyj and 41% of ROE

First, we recognize that Tokmanni Group Oyj has a significantly high ROE. Additionally, a comparison to the industry average ROE of 42% also puts the company’s ROE in a good light. Therefore, it might not be wrong to say that the impressive five-year net profit growth of 28% seen by Tokmanni Group Oyj was likely achieved thanks to the high ROE.

Considering the fact that the industry’s profits fell 3.6% over the same period, the growth in the company’s net profit is quite remarkable.

HLSE: TOKMAN Past Profit Growth on November 1, 2021

Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. Has the market assessed the future prospects of TOKMAN? You can find out in our latest Intrinsic Value infographic research report.

Is Tokmanni Group Oyj Using Profits Efficiently?

The high median payout rate of 68% over three years (implying that it keeps only 32% of the profits) for Tokmanni Group Oyj suggests that the growth of the company has not been really hampered despite the return of most profits to its shareholders.

In addition, Tokmanni Group Oyj is determined to continue to share its profits with its shareholders, which we deduce from its long history of five years of paying dividends. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 63%. Still, forecasts suggest that Tokmanni Group Oyj’s future ROE will drop to 32% even though the company’s payout ratio is not expected to change much.

Conclusion

Overall, we are quite happy with the performance of Tokmanni Group Oyj. In particular, its high ROE is quite remarkable and also the probable explanation for the considerable growth in its profits. Yet the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.


Source link

Share.

About Author

Avatar

Comments are closed.