Advertisement
Australia markets closed
  • ALL ORDS

    8,166.40
    -42.80 (-0.52%)
     
  • AUD/USD

    0.6664
    -0.0022 (-0.32%)
     
  • ASX 200

    7,931.70
    -39.90 (-0.50%)
     
  • OIL

    80.40
    +0.27 (+0.34%)
     
  • GOLD

    2,404.50
    +5.40 (+0.23%)
     
  • Bitcoin AUD

    101,079.76
    +746.31 (+0.74%)
     
  • CMC Crypto 200

    1,384.95
    -20.39 (-1.45%)
     

Is Peabody Energy Corporation's (NYSE:BTU) Recent Stock Performance Tethered To Its Strong Fundamentals?

Peabody Energy's (NYSE:BTU) stock is up by a considerable 16% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Specifically, we decided to study Peabody Energy's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Peabody Energy

How Is ROE Calculated?

ROE 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 Peabody Energy is:

16% = US$578m ÷ US$3.5b (Based on the trailing twelve months to March 2024).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.16 in profit.

What Has ROE Got To Do With 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 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.

Peabody Energy's Earnings Growth And 16% ROE

At first glance, Peabody Energy seems to have a decent ROE. Even when compared to the industry average of 18% the company's ROE looks quite decent. This certainly adds some context to Peabody Energy's exceptional 42% net income growth seen over the past five years. However, there could also be other drivers behind this growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing Peabody Energy's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 38% over the last few years.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is BTU fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Peabody Energy Efficiently Re-investing Its Profits?

Peabody Energy's three-year median payout ratio to shareholders is 2.9%, which is quite low. This implies that the company is retaining 97% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, Peabody Energy has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 36% over the next three years.

Summary

Overall, we are quite pleased with Peabody 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected 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.

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.