Unlock stock picks and a broker-level newsfeed that powers Wall Street.
editorial-team@simplywallst.com (Simply Wall St)
4 min read
In This Article:
It is hard to get excited after looking at Amotiv’s (ASX:AOV) recent performance, when its stock has declined 31% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Specifically, we decided to study Amotiv’s ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company’s success at turning shareholder investments into profits.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Amotiv is:
8.7% = AU$81m ÷ AU$932m (Based on the trailing twelve months to December 2024).
The ‘return’ is the income the business earned over the last year. That means that for every A$1 worth of shareholders’ equity, the company generated A$0.09 in profit.
Check out our latest analysis for Amotiv
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.
When you first look at it, Amotiv’s ROE doesn’t look that attractive. A quick further study shows that the company’s ROE doesn’t compare favorably to the industry average of 11% either. Although, we can see that Amotiv saw a modest net income growth of 17% over the past five years. We reckon that there could be other factors at play here. Such as – high earnings retention or an efficient management in place.
As a next step, we compared Amotiv’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 8.6%.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is AOV fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
