Yahoo Finance Is Dundee Precious Metals Inc.'s (TSE:DPM) Latest Stock Performance A Reflection Of Its Financial Health?
Dundee Precious Metals' (TSE:DPM) stock is up by a considerable 23% over the past month. 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. Specifically, we decided to study Dundee Precious Metals' 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 Dundee Precious Metals
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 Dundee Precious Metals is:
16% = US$182m ÷ US$1.1b (Based on the trailing twelve months to December 2023).
The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.16.
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. 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.
Dundee Precious Metals' Earnings Growth And 16% ROE
To start with, Dundee Precious Metals' ROE looks acceptable. On comparing with the average industry ROE of 8.4% the company's ROE looks pretty remarkable. This probably laid the ground for Dundee Precious Metals' significant 28% 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.
Next, on comparing Dundee Precious Metals' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 28% over the last few years.
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. Is Dundee Precious Metals fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Dundee Precious Metals Efficiently Re-investing Its Profits?
Dundee Precious Metals has a really low three-year median payout ratio of 16%, meaning that it has the remaining 84% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.
Moreover, Dundee Precious Metals is determined to keep sharing its profits with shareholders which we infer from its long history of four years of paying a dividend. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 22% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 8.0%) over the same period.
Conclusion
On the whole, we feel that Dundee Precious Metals' 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, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink 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.
