The stock of Télévision Française 1 Société anonyme (EPA:TFI) has weakened lately, but the financial outlook seems correct: is the market wrong?
Télévision Française 1 Société anonyme (EPA:TFI) had three difficult months with its share price down 8.2%. However, the company’s fundamentals look pretty decent and long-term financial data is generally in line with future market price movements. We will be particularly attentive today to the ROE of Télévision Française 1 Société anonyme.
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 short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Discover our latest analyzes for French Television 1 Société anonyme
How is ROE calculated?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, according to the formula above, the ROE of Télévision Française 1 Société anonyme is:
12% = €224 million ÷ €1.8 billion (based on the last twelve months to March 2022).
The “return” is the annual profit. This therefore means that for each €1 of investment by its shareholder, the company generates a profit of €0.12.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. 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. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Growth in the results of French Television 1 Société anonyme and 12% of ROE
A priori, the ROE of Télévision Française 1 Société anonyme seems acceptable. Additionally, the company’s ROE is similar to the industry average of 13%. The decent returns of French Television 1 Limited Company are not reflected in French Television 1 Limited Company’s five-year average net profit growth average of 4.7%. A few likely reasons that could keep earnings growth low are – the company has a high payout ratio or the company has misallocated capital, for example.
Then, comparing with the growth in net income for the sector, we found that the reported growth of French Television 1 Société anonyme was lower than the sector growth of 8.0% over the same period, which we do not like to see.
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps them determine whether the action is placed for a bright or bleak future. If you are wondering about the valuation of Télévision Française 1 Société anonyme, check out this indicator of its price/earnings ratio, compared to its sector of activity.
French Television 1 Does a public limited company reinvest its profits efficiently?
The high three-year median payout ratio of 59% (i.e. the company retains only 41% of its revenue) over the past three years for French Television 1 Société anonyme suggests that growth in the company’s profits were lower due to the payment of the majority of its income.
Moreover, Télévision Française 1 Société anonyme pays dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of the company’s growth. the company. After reviewing the latest analyst consensus data, we found that the company is expected to continue to pay out approximately 54% of its earnings over the next three years. As a result, the ROE of Télévision Française 1 Société anonyme should not change much either, which we have inferred from the analysts’ estimate of 12% for the future ROE.
Overall, we believe that Télévision Française 1 Société anonyme has positive strengths. However, although the company has a high ROE, its earnings growth is quite disappointing. This can be attributed to the fact that it only reinvests a small portion of its profits and pays out the rest as dividends. The latest forecasts from industry analysts show that the company should maintain its current growth rate. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization 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.