First Sensor AG’s Stock Uptrend Despite Financial Ambiguities

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Analyzing Return on Equity (ROE):

First Sensor AG has experienced a 1.1% stock increase recently, prompting a closer look at its financials. The Return on Equity (ROE) is a crucial metric indicating how efficiently the company utilizes its capital.

Calculating ROE:

ROE is calculated by dividing net profit from continuing operations by shareholders’ equity. For First Sensor, the ROE is 2.5%, indicating that for every €1 of shareholders’ equity, the company generated €0.03 in profit over the trailing twelve months to June 2023.

ROE and Earnings Growth:

ROE serves as a gauge for a company’s future earnings. High ROE and profit retention often correlate with higher growth rates. However, First Sensor’s ROE, at 2.5%, falls below the industry average of 17%, potentially influencing its net income growth of 3.8% over the past five years.

Comparisons with Industry:

Comparing First Sensor’s ROE and net income growth to the industry average reveals a lag. The company’s earnings growth is lower than the industry average of 30%, indicating possible challenges.

Profit Retention and Dividend Payout:

First Sensor’s low three-year median payout ratio of 4.5% suggests substantial profit retention (95%). However, the mismatch with low earnings growth raises questions. Despite paying dividends for six years, the company’s management seems committed to this, even amid minimal earnings growth.

Conclusion:

The First Sensor’s performance is nuanced. While profit retention is evident, the low ROE and earnings growth suggest potential challenges. Investors need to carefully assess if the company’s reinvestment strategies align with their expectations.

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