Yahoo Finance Will Weakness in Dorian LPG Ltd.'s (NYSE:LPG) Stock Prove Temporary Given Strong Fundamentals?
It is hard to get excited after looking at DorianG's (NYSE:LPG) recent performance, when its stock has declined 18% over the past three months. 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. In this article, we decided to focus on DorianG's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for DorianG
How Is ROE Calculated?
Return on equity 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 DorianG is:
27% = US$307m ÷ US$1.1b (Based on the trailing twelve months to June 2024).
The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.27.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
DorianG's Earnings Growth And 27% ROE
First thing first, we like that DorianG has an impressive ROE. Secondly, even when compared to the industry average of 16% the company's ROE is quite impressive. Under the circumstances, DorianG's considerable five year net income growth of 39% was to be expected.
We then performed a comparison between DorianG's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 41% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about DorianG's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is DorianG Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 87% (implying that it keeps only 13% of profits) for DorianG suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.
Besides, DorianG has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 72% of its profits over the next three years.
Conclusion
On the whole, we feel that DorianG's performance has been quite good. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. 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.
