The share of Dometic Group (STO: DOM) has increased by 17% in the last three months. However, we wonder if the company’s inconsistent financial data would negatively impact current stock price dynamics. In particular, we will pay particular attention to the ROE of Dometic Group today.
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 other words, it reveals the company’s success in turning shareholders’ investments into profits.
See our latest analysis for Dometic Group
How do you calculate return on equity?
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 of Dometic Group is:
4.2% = kr737m kr18b (based on the last twelve months to March 2021).
The “return” is the amount earned after tax over the past twelve months. This therefore means that for each SEK1 of the investments of its shareholder, the company generates a profit of SEK0.04.
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. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the company. 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 and ROE of 4.2% of the Dometic group
At first glance, Dometic Group’s ROE does not look so attractive. Then, compared to the industry’s average ROE of 8.4%, the company’s ROE leaves us even less enthusiastic. For this reason, Dometic Group’s 11% drop in net profit over five years is not surprising given its lower ROE. We believe there could be other factors at play here as well. For example, the company has a very high payout rate or faces competitive pressures.
Moreover, even compared to the industry, which cut its profits at a rate of 6.5% during the same period, we found that Dometic Group’s performance is quite disappointing, as it suggests that the company cut its profits at a faster rate. than industry.
Profit growth is an important metric to consider when valuing a stock. 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 DOM valued enough? This intrinsic business value infographic has everything you need to know.
Is Dometic Group Efficiently Using Retained Earnings?
Despite a normal three-year median payout rate of 45% (i.e. a retention rate of 55%), the fact that Dometic Group’s profits have declined is quite disconcerting. It seems that there could be other reasons for the lack in this regard. For example, the business could be in decline.
In addition, Dometic Group has been paying dividends for four years, which is a considerable time frame, suggesting that management must have perceived that shareholders prefer constant dividends even though earnings have declined. 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 37%. However, Dometic Group’s ROE is expected to increase to 11% although there is no expected change in its payout ratio.
All in all, we are a little ambivalent about the performance of Dometic Group. Even though it appears to be keeping most of its earnings, given the low ROE, investors might not benefit from all this reinvestment after all. The weak earnings growth suggests that our theory is correct. That said, we have studied the latest analysts’ forecast and found that while the company has cut profits in the past, analysts expect its profits to rise in the future. 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.
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