The Peter Warren Automotive Holdings (ASX:PWR) share price has increased by 9.4% over the past three months. As most people know, long-term fundamentals have a strong correlation with market price movements, so today we'll take a look at the company's key financial metrics and see if they play any role in the recent price movement. I decided to decide whether it was working or not. In particular, I would like to pay attention to Peter Warren Automotive Holdings' ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder as it indicates how effectively their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company's shareholders.
Check out our latest analysis for Peter Warren Automotive Holdings.
How do you calculate return on equity?
Return on equity can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Peter Warren Automotive Holdings' ROE is:
11% = AUD 56 million ÷ AUD 514 million (based on the trailing twelve months to June 2023).
“Return” is the annual profit. This means that for every A$1 of a shareholder's investment, the company will generate a profit of A$0.11 for him.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to assess a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain.” Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
Peter Warren Automotive Holdings' earnings growth and ROE 11%
First, Peter Warren Automotive Holdings' ROE looks acceptable. Still, it's not very encouraging when compared to his industry average ROE of 19%. If so, his massive 33% net profit increase over five years reported by Peter Warren Automotive Holdings comes as a pleasant surprise. We believe there may be other aspects that are positively impacting the company's earnings growth. For example, the company's management may have made some good strategic decisions, or the company may have a low dividend payout ratio. Keep in mind, the company has a respectable ROE. It's just that the industry's ROE is high. Therefore, this also gives some color to the company's high revenue growth.
As a next step, we compared Peter Warren Automotive Holdings's net income growth with its industry. And we're happy to see that the company's growth is faster than the average industry growth rate of 19%.
The foundations that give a company value have a lot to do with its revenue growth. In any case, investors should seek to ascertain whether expected earnings growth or decline has been factored in. Doing so will help you determine whether a stock's future is promising or ominous. What is his PWR worth today? Free research report's intrinsic value infographic helps you visualize whether PWR is currently mispriced in the market.
Does Peter Warren Automotive Holdings effectively reinvest its profits?
Peter Warren Automotive Holdings' significant three-year median payout ratio of 66% (retaining only 34% of its profits) means that the company returns most of its profits to shareholders, even though its earnings This suggests that we were able to achieve high growth.
In addition to growing profits, Peter Warren Automotive Holdings just recently started paying a dividend. It's entirely possible that the company was trying to impress shareholders. We checked the latest analyst consensus data and found that the company is expected to continue paying out around 65% of its profit over the next three years. In any case, Peter Warren Automotive Holdings' ROE is estimated to fall to 8.7%, although no change is expected to the dividend payout ratio.
conclusion
Overall, we feel that Peter Warren Automotive Holdings has some positive attributes. Specifically, it has a good ROE, which can lead to strong earnings growth. But the company keeps a small portion of its profits. That means the company was able to grow its revenue despite this, so that's not too bad. Having said that, we looked at current analyst forecasts and found that while the company has grown earnings in the past, we are concerned that analysts expect earnings to shrink in the future. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about a company.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
