Weak Financial Prospects Seem To Be Dragging Down Cancom SE (ETR:COK) Stock

Explore Cancom's Fair Values from the Community and select yours

Cancom (ETR:COK) has had a rough three months with its share price down 18%. To decide if this trend could continue, we decided to look at its weak fundamentals as they shape the long-term market trends. In this article, we decided to focus on Cancom's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Cancom is:

4.6% = €27m ÷ €577m (Based on the trailing twelve months to March 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every €1 worth of equity, the company was able to earn €0.05 in profit.

View our latest analysis for Cancom

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Cancom's Earnings Growth And 4.6% ROE

When you first look at it, Cancom's ROE doesn't look that attractive. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 15% either. Hence, the flat earnings seen by Cancom over the past five years could probably be the result of it having a lower ROE.

We then compared Cancom's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 12% in the same 5-year period, which is a bit concerning.XTRA:COK Past Earnings Growth August 15th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is COK fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Story Continues

Is Cancom Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 97% (meaning, the company retains only 2.9% of profits) for Cancom suggests that the company's earnings growth was miniscule as a result of paying out a majority of its earnings.

Additionally, Cancom has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 67% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 8.1%, over the same period.

Conclusion

In total, we would have a hard think before deciding on any investment action concerning Cancom. The low ROE, combined with the fact that the company is paying out almost if not all, of its profits as dividends, has resulted in the lack or absence of growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.

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