Is the market wrong about Swiss Prime Site AG (VTX: SPSN)?

It’s hard to get excited after looking at Swiss Prime Site (VTX:SPSN)’s recent performance, when its stock is down 4.3% over the past three months. However, a closer look at the sound financial statements might make you think again. Given that fundamentals usually lead to long-term market outcomes, the company is worth looking into. In particular, we will pay attention to Swiss Prime Sights ROE today.

Return on equity or return on equity is a key measure used to assess how efficiently a company’s management uses the company’s capital. In other words, it reveals the company’s success in converting shareholder investments into profits.

Check out our latest analysis for Swiss Prime

How do you calculate return on equity?

ROE can be calculated using the formula:

Return on Equity = Net profit (from continuing operations) ÷ Shareholders’ equity

So, based on the above formula, the ROE for Swiss Prime is:

8.1% = CHF 523 million ÷ CHF 6.4 billion (based on the subsequent twelve months to June 2022).

The “return” is the after-tax amount earned over the past 12 months. This means that for every CHF 1 in shareholder equity, the company has earned CHF 0.08 in profit.

What is the relationship between ROE and earnings growth?

We have already established that ROE acts as an effective profit-generating measure of a company’s future earnings. Depending on how much of these earnings the company reinvests or “keeps,” and how effectively it is, we can then assess the company’s earnings growth potential. Assuming everything else remains unchanged, the higher the return on equity and earnings retention, the higher the company’s growth rate compared to companies that don’t necessarily bear these characteristics.

Swiss Prime Site earnings growth and 8.1% ROE

To start with, Swiss Prime Site’s ROE seems acceptable. And compared to the industry, we found a similar industry average ROE of 8.9%. Thus, this likely set the stage for the decent 13% growth Swiss Prime Site has seen over the past five years.

We then compared Swiss Prime’s net income growth with the industry and found that the company’s growth figure was lower than the industry average growth rate of 20% in the same period, which is a bit worrying.

Past earnings growth

Past earnings growth

Dividend growth is an important metric to consider when evaluating stocks. It is important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). By doing this, they will have an idea of ​​whether the stock is heading to the clear blue waters or if the swampy waters are waiting. Is Swiss Prime Site fair value compared to other companies? these 3 evaluation measures It may help you decide.

Is Swiss Prime using its retained earnings effectively?

With an average three-year payout ratio of 50% (meaning the company keeps 50% of its earnings), Swiss Prime Site appears to be efficiently reinvesting in such a way that it sees respectable growth in its earnings and payouts that are covered well.

In addition, Swiss Prime has paid dividends over a period of at least ten years, which means the company is very serious about sharing its earnings with shareholders. When examining the latest analyst consensus data, we found that the company’s future payout ratio is expected to rise to 87% over the next three years. Accordingly, the expected increase in the payments ratio explains the expected decrease in the company’s equity return to 4.7%, during the same period.

conclusion

All in all, we are very pleased with Swiss Prime Site’s performance. In particular, we like that the company is reinvesting heavily in its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. However, when examining the latest analyst forecasts, we found that while the company saw its past earnings grow, analysts expect its future earnings to contract. Are these analysts’ predictions based on the broad outlook of the industry or on the company’s fundamentals? Click here to go to our analyst forecast page for the company.

Do you have feedback on this article? Worried about the content? keep in touch directly with us. Alternatively, email the editorial team (at) simplywallst.com.

This article written by Simply Wall St is general in nature. We provide comments based on historical data and analyst predictions 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 it does not take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by fundamental data. Note that our analysis may not include the company’s most recent price-sensitive announcements or specific materials. Wall Street simply has no position in any of the stocks mentioned.

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