Haemonetics’ ROE in this article.” data-reactid=”29″>It is hard to get excited after looking at Haemonetics’ (NYSE:HAE) recent performance, when its stock has declined 26% over the past three months. 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. Specifically, we decided to study Haemonetics’ ROE in this article.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
Check out our latest analysis for Haemonetics ” data-reactid=”36″>Check out our latest analysis for Haemonetics
How Is ROE Calculated?
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Haemonetics is:
16% = US$96m ÷ US$609m (Based on the trailing twelve months to June 2020).
The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.16 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
A Side By Side comparison of Haemonetics’ Earnings Growth And 16% ROE
At first glance, Haemonetics seems to have a decent ROE. On comparing with the average industry ROE of 11% the company’s ROE looks pretty remarkable. This probably laid the ground for Haemonetics’ significant 57% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as – high earnings retention or an efficient management in place.
We then compared Haemonetics’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 14% in the same period.
intrinsic value infographic in our free research report helps visualize whether HAE is currently mispriced by the market.” data-reactid=”64″>Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. What is HAE worth today? The intrinsic value infographic in our free research report helps visualize whether HAE is currently mispriced by the market.
Is Haemonetics Using Its Retained Earnings Effectively?
Given that Haemonetics doesn’t pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Click here to be taken to our analyst’s forecasts page for the company.” data-reactid=”68″>In total, we are pretty happy with Haemonetics’ 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. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”69″>This article by Simply Wall St is general in nature. 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.