Yahoo Finance Has MaxiPARTS Limited (ASX:MXI) Stock's Recent Performance Got Anything to Do With Its Financial Health?
MaxiPARTS' (ASX:MXI) stock up by 5.0% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Particularly, we will be paying attention to MaxiPARTS' 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. Put another way, it reveals the company's success at turning shareholder investments into profits.
See our latest analysis for MaxiPARTS
How To Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for MaxiPARTS is:
8.7% = AU$7.4m ÷ AU$85m (Based on the trailing twelve months to June 2023).
The 'return' is the income the business earned over the last year. That means that for every A$1 worth of shareholders' equity, the company generated A$0.09 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
MaxiPARTS' Earnings Growth And 8.7% ROE
At first glance, MaxiPARTS' ROE doesn't look very promising. However, given that the company's ROE is similar to the average industry ROE of 8.7%, we may spare it some thought. Particularly, the exceptional 30% net income growth seen by MaxiPARTS over the past five years is pretty remarkable. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.
We then performed a comparison between MaxiPARTS' net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 29% in the same 5-year period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is MXI worth today? The intrinsic value infographic in our free research report helps visualize whether MXI is currently mispriced by the market.
Is MaxiPARTS Efficiently Re-investing Its Profits?
MaxiPARTS has a three-year median payout ratio of 37% (where it is retaining 63% of its income) which is not too low or not too high. So it seems that MaxiPARTS is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Besides, MaxiPARTS has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 39%. However, MaxiPARTS' ROE is predicted to rise to 12% despite there being no anticipated change in its payout ratio.
Summary
In total, it does look like MaxiPARTS has some positive aspects to its business. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.
