Is Protector Forsikring ASA’s (OB:PROT) latest stock market performance a reflection of its financial health?
Protector Forsikring (OB:PROT) stock is up 34% over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In this article, we have decided to focus on the ROEs of Protector Forsikring.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
Check out our latest review for Protector Forsikring
How to calculate return on equity?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Protector Forsikring is:
38% = 1.3 billion kr ÷ 3.5 billion kr (based on the last twelve months to September 2021).
The “yield” is the profit of the last twelve months. Thus, this means that for every NOK1 of its shareholder’s investment, the company generates a profit of NOK0.38.
What does ROE have to do with earnings growth?
So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
Protector Forsikring profit growth and ROE of 38%
First of all, we love that Protector Forsikring has an impressive ROE. Second, even compared to the industry average of 8.9%, the company’s ROE is quite impressive. Therefore, Protector Forsikring’s exceptional net income growth of 26% over the past five years comes as no surprise.
In a next step, we benchmarked Protector Forsikring’s net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 7.2% .
The basis for attaching value to a company is, to a large extent, linked to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. 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. Thus, you might want to check whether Protector Forsikring is trading on a high P/E or a low P/E, relative to its industry.
Does Protector Forsikring use its profits efficiently?
Protector Forsikring’s three-year median payout ratio to shareholders is 18%, which is quite low. This implies that the company retains 82% of its profits. So it looks like management is massively reinvesting earnings to grow their business, which is reflected in their earnings growth.
In addition, Protector Forsikring has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Looking at current analyst consensus data, we can see that the company’s future payout ratio is expected to reach 100% within the next three years. Thus, the expected increase in the payout ratio explains the expected drop in the company’s ROE to 21%, over the same period.
All in all, we are quite satisfied with the performance of the Protector Forsikring. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive earnings growth. However, according to the latest forecasts from industry analysts, the company’s earnings are likely to decline in the future. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.