Beiersdorf Aktiengesellschaft's (ETR:BEI) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

Beiersdorf (ETR:BEI) has had a rough three months with its share price down 3.7%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Beiersdorf's ROE in this article. Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. How Do You Calculate Return On Equity? 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 Beiersdorf is:11% = €928m ÷ €8.5b (Based on the trailing twelve months to December 2024). The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each €1 of shareholders' capital it has, the company made €0.11 in profit. See our latest analysis for Beiersdorf What Has ROE Got To Do With Earnings Growth? We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes. Beiersdorf's Earnings Growth And 11% ROE To start with, Beiersdorf's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 12%. Consequently, this likely laid the ground for the decent growth of 6.6% seen over the past five years by Beiersdorf. We then performed a comparison between Beiersdorf's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 6.9% in the same 5-year period. XTRA:BEI Past Earnings Growth May 28th 2025 Earnings growth is an important metric to consider when valuing a stock. 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. Has the market priced in the future outlook for BEI? You can find out in our latest intrinsic value infographic research report. Is Beiersdorf Making Efficient Use Of Its Profits? In Beiersdorf's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 23% (or a retention ratio of 77%), which suggests that the company is investing most of its profits to grow its business. Moreover, Beiersdorf 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. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 21%. Accordingly, forecasts suggest that Beiersdorf's future ROE will be 12% which is again, similar to the current ROE. Conclusion On the whole, we feel that Beiersdorf's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.