Does bioMérieux SA’s latest stock market performance (EPA: BIM) reflect its financial health?

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bioMérieux (EPA: BIM) has achieved a good stock market performance with a significant increase in its share of 10% over the past three months. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. In this article, we have decided to focus on bioMérieux’s ROE.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In simpler terms, it measures a company’s profitability relative to equity.

See our latest analysis for bioMérieux

How to calculate return on equity?

ROE can be calculated using the formula:

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

Thus, based on the above formula, bioMérieux’s ROE is:

18% = 507 million euros ÷ 2.7 billion euros (based on the last twelve months up to June 2021).

The “return” is the profit of the last twelve months. This therefore means that for every € 1 invested by its shareholder, the company generates a profit of € 0.18.

What does ROE have to do with profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

Growth in bioMérieux’s results and 18% ROE

A priori, bioMérieux seems to have a respectable ROE. Even compared to the industry average of 18%, the company’s ROE looks pretty decent. This certainly adds context to the exceptional growth of bioMérieux’s net income of 20% observed over the past five years. We believe that there could also be other aspects that positively influence the company’s profit growth. For example, the business has a low payout ratio or is managed efficiently.

We then compared bioMérieux’s net profit growth with the industry and found that the company’s growth number is lower than the industry’s average growth rate of 38% over the same period, which is a little worrying.

ENXTPA: BIM Past Profit Growth October 23, 2021

Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are waiting for them. What is BIM worth today? The intrinsic value infographic in our free research report helps to visualize whether BIM is currently being poorly valued by the market.

Is bioMérieux making effective use of its retained earnings?

bioMérieux has a very low three-year median distribution rate of 15%, which means that it still has 85% to reinvest in its business. It therefore appears that bioMérieux is massively reinvesting its profits to develop its business, which is reflected in its profit growth.

In addition, bioMérieux is determined to continue to share its profits with its shareholders, which we can deduce from its long history of dividend distribution for at least ten years. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 15%. In any event, bioMérieux’s ROE should fall to 13% despite the absence of any anticipated change in its payout ratio.

Conclusion

Overall, we are quite satisfied with bioMérieux’s performance. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in respectable growth in its profits. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is 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 material. Simply Wall St has no position in the mentioned stocks.

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