Yahoo Finance Is Hemisphere Energy Corporation's (CVE:HME) Latest Stock Performance Being Led By Its Strong Fundamentals?
Most readers would already know that Hemisphere Energy's (CVE:HME) stock increased by 8.9% over the past three months. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Hemisphere Energy's ROE.
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. Put another way, it reveals the company's success at turning shareholder investments into profits.
Check out our latest analysis for Hemisphere Energy
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Hemisphere Energy is:
39% = CA$25m ÷ CA$64m (Based on the trailing twelve months to March 2024).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.39 in profit.
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. 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.
Hemisphere Energy's Earnings Growth And 39% ROE
First thing first, we like that Hemisphere Energy has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 9.6% which is quite remarkable. Under the circumstances, Hemisphere Energy's considerable five year net income growth of 60% was to be expected.
Next, on comparing with the industry net income growth, we found that Hemisphere Energy's growth is quite high when compared to the industry average growth of 40% in the same period, which is great to see.
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 HME worth today? The intrinsic value infographic in our free research report helps visualize whether HME is currently mispriced by the market.
Is Hemisphere Energy Making Efficient Use Of Its Profits?
Hemisphere Energy's three-year median payout ratio is a pretty moderate 41%, meaning the company retains 59% of its income. So it seems that Hemisphere Energy is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Along with seeing a growth in earnings, Hemisphere Energy only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 61% over the next three years.
Summary
Overall, we are quite pleased with Hemisphere Energy's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. 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 latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
