Australia markets open in 8 hours 50 minutes
  • ALL ORDS

    7,259.50
    +9.20 (+0.13%)
     
  • AUD/USD

    0.7004
    +0.0091 (+1.32%)
     
  • ASX 200

    7,020.60
    +5.00 (+0.07%)
     
  • OIL

    89.35
    +0.34 (+0.38%)
     
  • GOLD

    1,803.20
    +12.00 (+0.67%)
     
  • BTC-AUD

    34,515.70
    +1,304.93 (+3.93%)
     
  • CMC Crypto 200

    564.00
    +21.12 (+3.89%)
     

Keysight Technologies, Inc.'s (NYSE:KEYS) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?

  • Oops!
    Something went wrong.
    Please try again later.
·3-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

With its stock down 15% over the past three months, it is easy to disregard Keysight Technologies (NYSE:KEYS). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Keysight Technologies' ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Keysight Technologies

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Keysight Technologies is:

27% = US$1.0b ÷ US$3.8b (Based on the trailing twelve months to April 2022).

The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.27 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Keysight Technologies' Earnings Growth And 27% ROE

First thing first, we like that Keysight Technologies has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us. As a result, Keysight Technologies' exceptional 37% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that Keysight Technologies' growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is KEYS worth today? The intrinsic value infographic in our free research report helps visualize whether KEYS is currently mispriced by the market.

Is Keysight Technologies Efficiently Re-investing Its Profits?

Given that Keysight Technologies doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

In total, we are pretty happy with Keysight Technologies' 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. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting