Advertisement
Australia markets open in 6 hours 22 minutes
  • ALL ORDS

    8,209.20
    -63.50 (-0.77%)
     
  • AUD/USD

    0.6685
    -0.0026 (-0.38%)
     
  • ASX 200

    7,971.60
    -64.90 (-0.81%)
     
  • OIL

    80.25
    -2.57 (-3.10%)
     
  • GOLD

    2,399.10
    -57.30 (-2.33%)
     
  • Bitcoin AUD

    100,810.54
    +90.35 (+0.09%)
     
  • CMC Crypto 200

    1,389.24
    +58.34 (+4.38%)
     

Hamilton Beach Brands Holding Company's (NYSE:HBB) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Hamilton Beach Brands Holding (NYSE:HBB) has had a rough three months with its share price down 12%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Hamilton Beach Brands Holding's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

Check out our latest analysis for Hamilton Beach Brands Holding

How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

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

ADVERTISEMENT

So, based on the above formula, the ROE for Hamilton Beach Brands Holding is:

20% = US$29m ÷ US$145m (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.20.

What Is The Relationship Between ROE And Earnings Growth?

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. 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.

Hamilton Beach Brands Holding's Earnings Growth And 20% ROE

To start with, Hamilton Beach Brands Holding's ROE looks acceptable. On comparing with the average industry ROE of 15% the company's ROE looks pretty remarkable. Despite this, Hamilton Beach Brands Holding's five year net income growth was quite flat over the past five years. We reckon that there could be some other factors at play here that's limiting the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

We then compared Hamilton Beach Brands Holding's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 24% in the same 5-year period, which is a bit concerning.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about Hamilton Beach Brands Holding's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Hamilton Beach Brands Holding Efficiently Re-investing Its Profits?

Hamilton Beach Brands Holding's low three-year median payout ratio of 23%, (meaning the company retains77% of profits) should mean that the company is retaining most of its earnings and consequently, should see higher growth than it has reported.

Additionally, Hamilton Beach Brands Holding has paid dividends over a period of seven years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth.

Summary

In total, it does look like Hamilton Beach Brands Holding has some positive aspects to its business. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Hamilton Beach Brands Holding's past profit growth, check out this visualization of past earnings, revenue and cash flows.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.