Yahoo Finance Should Weakness in Kuehne + Nagel International AG's (VTX:KNIN) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?
It is hard to get excited after looking at Kuehne + Nagel International's (VTX:KNIN) recent performance, when its stock has declined 3.4% over the past week. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Kuehne + Nagel International'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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Kuehne + Nagel International
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Kuehne + Nagel International is:
36% = CHF1.3b ÷ CHF3.5b (Based on the trailing twelve months to March 2024).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CHF1 worth of equity, the company was able to earn CHF0.36 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all 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 when compared to companies that don't have the same features.
Kuehne + Nagel International's Earnings Growth And 36% ROE
To begin with, Kuehne + Nagel International has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 22% which is quite remarkable. Under the circumstances, Kuehne + Nagel International's considerable five year net income growth of 22% was to be expected.
Next, on comparing with the industry net income growth, we found that Kuehne + Nagel International's reported growth was lower than the industry growth of 51% over the last few years, which is not something we like to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Kuehne + Nagel International's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Kuehne + Nagel International Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 59% (implying that it keeps only 41% of profits) for Kuehne + Nagel International suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Moreover, Kuehne + Nagel International is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 66%. As a result, Kuehne + Nagel International's ROE is not expected to change by much either, which we inferred from the analyst estimate of 37% for future ROE.
Conclusion
On the whole, we do feel that Kuehne + Nagel International has some positive attributes. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
