With its stock down 5.0% over the past three months, it is easy to disregard HELLA GmbH KGaA (ETR:HLE). 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. Particularly, we will be paying attention to HELLA GmbH KGaA’s ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
Return on equity 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 HELLA GmbH KGaA is:
6.5% = €199m ÷ €3.1b (Based on the trailing twelve months to June 2025).
The ‘return’ is the profit over the last twelve months. So, this means that for every €1 of its shareholder’s investments, the company generates a profit of €0.06.
View our latest analysis for HELLA GmbH KGaA
So far, we’ve learned that ROE is a measure of a company’s profitability. 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. 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.
On the face of it, HELLA GmbH KGaA’s ROE is not much to talk about. Next, when compared to the average industry ROE of 9.0%, the company’s ROE leaves us feeling even less enthusiastic. However, we we’re pleasantly surprised to see that HELLA GmbH KGaA grew its net income at a significant rate of 35% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing HELLA GmbH KGaA’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 31% over the last few years.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. Is HELLA GmbH KGaA fairly valued compared to other companies? These 3 valuation measures might help you decide.
HELLA GmbH KGaA’s three-year median payout ratio is a pretty moderate 30%, meaning the company retains 70% of its income. So it seems that HELLA GmbH KGaA is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that’s well covered.
Moreover, HELLA GmbH KGaA is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts’ consensus data, we found that the company is expected to keep paying out approximately 29% of its profits over the next three years. However, HELLA GmbH KGaA’s ROE is predicted to rise to 11% despite there being no anticipated change in its payout ratio.
In total, it does look like HELLA GmbH KGaA has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.