Horizon Therapeutics Public Limited Company's (NASDAQ:HZNP) Stock Is Going Strong: Is the Market Following Fundamentals?

Horizon Therapeutics’ ROE.” data-reactid=”28″>Horizon Therapeutics (NASDAQ:HZNP) has had a great run on the share market with its stock up by a significant 57% over the last three months. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Horizon Therapeutics’ 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.

View our latest analysis for Horizon Therapeutics ” data-reactid=”30″> View our latest analysis for Horizon Therapeutics

How To Calculate Return On Equity?

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

So, based on the above formula, the ROE for Horizon Therapeutics is:

22% = US$517m ÷ US$2.4b (Based on the trailing twelve months to June 2020).

The ‘return’ is the yearly profit. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.22.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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.

Horizon Therapeutics’ Earnings Growth And 22% ROE

At first glance, Horizon Therapeutics seems to have a decent ROE. Further, the company’s ROE compares quite favorably to the industry average of 15%. This probably laid the ground for Horizon Therapeutics’ significant 41% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company’s earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Horizon Therapeutics’ net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 17%.

More

intrinsic value infographic in our free research report helps visualize whether HZNP is currently mispriced by the market.” data-reactid=”58″>Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. What is HZNP worth today? The intrinsic value infographic in our free research report helps visualize whether HZNP is currently mispriced by the market.

Is Horizon Therapeutics Efficiently Re-investing Its Profits?

Horizon Therapeutics doesn’t pay any dividend currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.

Summary

visualization of analyst forecasts for the company.” data-reactid=”62″>On the whole, we feel that Horizon Therapeutics’ performance has been quite good. 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. Having said that, the company’s earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.