Yahoo Finance Deutsche Post AG (ETR:DPW) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?
With its stock down 4.7% over the past month, it is easy to disregard Deutsche Post (ETR:DPW). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Deutsche Post's ROE.
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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Deutsche Post
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Deutsche Post is:
22% = €5.3b ÷ €24b (Based on the trailing twelve months to March 2023).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.22 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
Deutsche Post's Earnings Growth And 22% ROE
To begin with, Deutsche Post has a pretty high ROE which is interesting. Additionally, a comparison with the average industry ROE of 20% also portrays the company's ROE in a good light. As a result, Deutsche Post's remarkable 22% net income growth seen over the past 5 years is likely aided by its high ROE.
Next, on comparing Deutsche Post's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 22% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is DPW worth today? The intrinsic value infographic in our free research report helps visualize whether DPW is currently mispriced by the market.
Is Deutsche Post Using Its Retained Earnings Effectively?
Deutsche Post's three-year median payout ratio is a pretty moderate 43%, meaning the company retains 57% of its income. By the looks of it, the dividend is well covered and Deutsche Post is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Besides, Deutsche Post has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 47%. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 19%.
Conclusion
In total, we are pretty happy with Deutsche Post'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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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. We provide commentary based on historical data and analyst forecasts only using an 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 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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