Prada S.p.A.'s (HKG:1913) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

It is hard to get excited after looking at Prada's (HKG:1913) recent performance, when its stock has declined 3.3% over the past week. 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. Particularly, we will be paying attention to Prada's ROE today. Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. How To Calculate Return On Equity? ROE 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 Prada is:20% = €845m ÷ €4.2b (Based on the trailing twelve months to June 2025). The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every HK$1 worth of equity, the company was able to earn HK$0.20 in profit. Check out our latest analysis for Prada 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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. Prada's Earnings Growth And 20% ROE At first glance, Prada seems to have a decent ROE. Especially when compared to the industry average of 11% the company's ROE looks pretty impressive. This probably laid the ground for Prada's significant 42% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently. As a next step, we compared Prada's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 14%. SEHK:1913 Past Earnings Growth December 28th 2025 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. This then helps them determine if the stock is placed for a bright or bleak future. Is 1913 fairly valued? This infographic on the company's intrinsic value has everything you need to know. Is Prada Using Its Retained Earnings Effectively? Prada has a three-year median payout ratio of 49% (where it is retaining 51% of its income) which is not too low or not too high. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Prada is reinvesting its earnings efficiently. Moreover, Prada 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 54% of its profits over the next three years. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 17%. Conclusion In total, we are pretty happy with Prada's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more. Mobile Infrastructure for Defense and DisasterThe next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.Get the investor briefing before the next round of contractsSponsored On Behalf of CiTech