Are Poor Financial Prospects Dragging Down Fresenius Medical Care AG (ETR:FME Stock?
With its stock down 9.1% over the past month, it is easy to disregard Fresenius Medical Care (ETR:FME). We decided to study the company’s financials to determine if the downtrend will continue as the long-term performance of a company usually dictates market outcomes. Particularly, we will be paying attention to Fresenius Medical Care’s ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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 Fresenius Medical Care is:
5.2% = €812m ÷ €16b (Based on the trailing twelve months to March 2025).
The ‘return’ is the amount earned after tax over the last twelve months. So, this means that for every €1 of its shareholder’s investments, the company generates a profit of €0.05.
Check out our latest analysis for Fresenius Medical Care
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.
When you first look at it, Fresenius Medical Care’s ROE doesn’t look that attractive. However, given that the company’s ROE is similar to the average industry ROE of 5.1%, we may spare it some thought. But Fresenius Medical Care saw a five year net income decline of 21% over the past five years. Bear in mind, the company does have a slightly low ROE. Hence, this goes some way in explaining the shrinking earnings.
However, when we compared Fresenius Medical Care’s growth with the industry we found that while the company’s earnings have been shrinking, the industry has seen an earnings growth of 16% in the same period. This is quite worrisome.
XTRA:FME Past Earnings Growth June 22nd 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 Fresenius Medical Care fairly valued compared to other companies? These 3 valuation measures might help you decide.
Story Continues
With a high three-year median payout ratio of 55% (implying that 45% of the profits are retained), most of Fresenius Medical Care’s profits are being paid to shareholders, which explains the company’s shrinking earnings. With only a little being reinvested into the business, earnings growth would obviously be low or non-existent.
Moreover, Fresenius Medical Care has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Upon studying the latest analysts’ consensus data, we found that the company’s future payout ratio is expected to drop to 39% over the next three years. As a result, the expected drop in Fresenius Medical Care’s payout ratio explains the anticipated rise in the company’s future ROE to 8.3%, over the same period.
On the whole, Fresenius Medical Care’s performance is quite a big let-down. Because the company is not reinvesting much into the business, and given the low ROE, it’s not surprising to see the lack or absence of growth in its earnings. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. 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.
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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.
