WEBULL

Are Robust Financials Driving The Recent Rally In BKW AG's (VTX:BKW) Stock?

Simply Wall St · 06/26 09:43

BKW's (VTX:BKW) stock is up by a considerable 12% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to BKW's ROE today.

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. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Is ROE Calculated?

The formula for ROE is:

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

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

11% = CHF648m ÷ CHF5.7b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every CHF1 worth of equity, the company was able to earn CHF0.11 in profit.

See our latest analysis for BKW

Why Is ROE Important For 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. 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.

A Side By Side comparison of BKW's Earnings Growth And 11% ROE

To start with, BKW's ROE looks acceptable. Further, the company's ROE is similar to the industry average of 9.8%. Consequently, this likely laid the ground for the decent growth of 14% seen over the past five years by BKW.

As a next step, we compared BKW's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 14% in the same period.

past-earnings-growth
SWX:BKW Past Earnings Growth June 26th 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for BKW? You can find out in our latest intrinsic value infographic research report.

Is BKW Using Its Retained Earnings Effectively?

BKW has a three-year median payout ratio of 36%, which implies that it retains the remaining 64% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Moreover, BKW 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. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 43%. However, BKW's future ROE is expected to decline to 9.0% despite there being not much change anticipated in the company's payout ratio.

Summary

In total, we are pretty happy with BKW's performance. 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, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.