In This Article:
Stevanato Group (NYSE:STVN) has had a great run on the share market with its stock up by a significant 8.1% over the last week. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to Stevanato Group's ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. 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 Stevanato Group
How Is ROE Calculated?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Stevanato Group is:
8.7% = €115m ÷ €1.3b (Based on the trailing twelve months to September 2024).
The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.09 in profit.
Why Is ROE Important For 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Stevanato Group's Earnings Growth And 8.7% ROE
On the face of it, Stevanato Group's ROE is not much to talk about. However, its ROE is similar to the industry average of 8.7%, so we won't completely dismiss the company. On the other hand, Stevanato Group reported a moderate 12% net income growth over the past five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
We then performed a comparison between Stevanato Group's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 10% in the same 5-year period.