Ackermans & Van Haaren NV (EBR: ACKB) stock has recently shown weakness, but the financial outlook looks correct: is the market wrong?


Ackermans & Van Haaren (EBR: ACKB) had a difficult month with its price down 4.2%. However, the fundamentals of the company look pretty decent, and long-term financial data is generally aligned with future movements in market prices. In this article, we have decided to focus on the ROE of Ackermans & Van Haaren.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. 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 Ackermans & Van Haaren

How is the ROE calculated?

Return on equity can be calculated using the formula:

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

Thus, based on the above formula, the ROE for Ackermans & Van Haaren is:

9.0% = 443 million euros ÷ 4.9 billion euros (based on the last twelve months up to June 2021).

“Return” refers to a company’s profits over the past year. Another way to look at this is that for every $ 1 in shares, the company was able to make $ 0.09 in profit.

What is the relationship between ROE and profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on how much of those profits the company reinvests or “withholds” and its efficiency, we are then able to assess a company’s profit growth potential. Assuming everything 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 than companies that do not have the same characteristics.

Ackermans & Van Haaren 9.0% profit growth and ROE

At first glance, the ROE of Ackermans & Van Haaren is not much to say. Then, compared to the industry average ROE of 12%, the company’s ROE leaves us even less enthusiastic. As a result, Ackermans & Van Haaren’s low net income growth of 4.9% over the past five years may possibly be explained by low ROE, among other factors.

Next, comparing Ackermans & Van Haaren’s net income growth with the industry, we found that the reported growth of the company is similar to the industry average growth rate of 4.8% over the course of the same period.

past profit growth
ENXTBR: ACKB Past Profit Growth December 8, 2021

Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This then helps them determine whether the stock is set for a bright or dark future. If you’re wondering about Ackermans & Van Haaren’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.

Does Ackermans & Van Haaren use its profits effectively?

Despite a moderate three-year median payout ratio of 26% (which implies the company keeps the remaining 74% of its revenue), earnings growth for Ackermans & Van Haaren has been quite weak. Therefore, there could be other reasons for the lack in this regard. For example, the business could be in decline.

Additionally, Ackermans & Van Haaren has been paying dividends for at least ten years or more, suggesting that management must have perceived that shareholders prefer dividends over earnings growth. 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 25%. As a result, Ackermans & Van Haaren’s ROE is not expected to change much either, which we have deduced from analysts’ estimate of 10% for future ROE.

Conclusion

Overall, we think Ackermans & Van Haaren certainly have some positive factors to consider. That is, decent profit growth supported by a high reinvestment rate. However, we believe that profit growth could have been higher if the company had improved due to the low ROE rate. Especially considering the way the company reinvests a huge chunk of its profits. Looking at current analysts’ estimates, we found that analysts expect the company to continue its recent streak of 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 any stock 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 documents. Simply Wall St has no position in any of the stocks mentioned.


About Meredith Campagna

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