Does the recent performance of PSP Swiss Property AG (VTX: PSPN) stock have anything to do with its financial health?

0

The stock of PSP Swiss Property (VTX: PSPN) has risen 3.6% in the past three months. We ask ourselves if and what role corporate finances are playing in this price change, as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we have decided to study the ROE of PSP Swiss Property 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 has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.

Check out our latest review for PSP Swiss Property

How is the ROE calculated?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, based on the above formula, the ROE of PSP Swiss Property is:

7.4% = CHF 333 million ÷ CHF 4.5 billion (based on the last twelve months up to March 2021).

The “return” is the annual profit. One way to conceptualize this is that for every CHF of share capital it has, the company has made a profit of CHF 0.07.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on how much of that profit the company reinvests or “withholds”, and how effectively it does so, we are then able to assess a company’s profit growth potential. Generally speaking, all other things being equal, companies with a high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.

A side-by-side comparison of PSP Swiss Property’s 7.4% profit growth and ROE

At first glance, the ROE of PSP Swiss Property is not much to say. However, given that the company’s ROE is similar to the industry average ROE of 7.2%, we can think about it. That said, PSP Swiss Property has shown modest net income growth of 18% over the past five years. Given the slightly low ROE, it is likely that other aspects are behind this growth. For example, the business has a low payout rate or is managed efficiently.

Second, we compared the growth in net income of PSP Swiss Property to that of the industry and found that the company had a similar growth figure compared to the industry’s average growth rate of 17% in the previous year. during the same period.

SWX: PSPN Past Profit Growth May 26, 2021

Profit growth is an important metric to consider when valuing a stock. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This will help them determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check whether PSP Swiss Property is trading at a high P / E or a low P / E, relative to its industry.

Does PSP Swiss Property effectively reinvest its profits?

PSP Swiss Property has a three-year median payout rate of 50%, which means it keeps the remaining 50% of its profits. This suggests that its dividend is well hedged, and given the decent growth the company is seeing, it looks like management is effectively reinvesting its profits.

In addition, PSP Swiss Property has paid dividends over a period of at least ten years, which means the company is serious enough to share its profits with its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to reach 77% over the next three years. Thus, the expected increase in the payout ratio explains the expected drop in the company’s ROE to 4.8% over the same period.

summary

Overall, we believe that PSP Swiss Property has positive attributes. Even despite the low rate of return, the company has shown impressive earnings growth by reinvesting heavily in its business. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.

Promoted
If you decide to trade PSP Swiss Property, use the cheapest platform * ranked # 1 overall by Barron’s, Interactive brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.

This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in the mentioned stocks.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020

Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

Share.

About Author

Comments are closed.