Zehnder Group AG (VTX: ZEHN) shares have fallen, but fundamentals look strong: is the market wrong?


Zehnder Group (VTX: ZEHN) had a tough three-month period with its share price down 15%. But if you pay close attention to it, you might understand that its strong financial data could mean that the stock could potentially see its value rise in the long run, given how the markets typically reward companies with good health. financial. In this article, we have decided to focus on the ROE of Zehnder Group.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.

See our latest analysis for the Zehnder Group

How do you 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 the Zehnder group is:

18% = 60 million euros ÷ 344 million euros (based on the last twelve months up to June 2021).

The “return” is the profit of the last twelve months. Another way to look at it is that for every CHF1 worth of equity, the company was able to earn CHF 0.18 in profit.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

Zehnder Group profit growth and ROE of 18%

For starters, Zehnder Group’s ROE seems acceptable. Additionally, the company’s ROE is similar to the industry average of 21%. Therefore, this likely laid the groundwork for the impressive 28% net profit growth seen over the past five years by Zehnder Group. However, other drivers could also be behind this growth. Such as – high profit retention or effective management in place.

In the next step, we compared the net income growth of Zehnder Group with the industry and luckily we found that the growth observed by the company is higher than the industry average growth of 9.4 %.

SWX: ZEHN Past Profit Growth November 25, 2021

Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. Is the Zehnder group just valued compared to other companies? These 3 evaluation measures could help you decide.

Does the Zehnder Group use its profits efficiently?

Zehnder Group’s three-year median payout ratio to shareholders is 25%, which is quite low. This implies that the company keeps 75% of its profits. So it appears that management is reinvesting the profits massively to grow their business, which is reflected in the profit growth figure.

In addition, Zehnder Group has been paying dividends for at least ten years or more. This shows that the company is committed to sharing the profits with its shareholders. After studying the latest consensus data from analysts, we found that the company’s future payout ratio is expected to reach 38% over the next three years. Either way, the ROE is not expected to change much for the company despite the expected higher payout ratio.

Summary

Overall, we are quite happy with the performance of Zehnder Group. Specifically, we like the fact that the company is reinvesting a huge portion of its profits at a high rate of return. This of course allowed the company to experience substantial growth in profits. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

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 documents. Simply Wall St has no position in any of the stocks mentioned.

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About Meredith Campagna

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