Yahoo Finance Will Weakness in HF Sinclair Corporation's (NYSE:DINO) Stock Prove Temporary Given Strong Fundamentals?
With its stock down 4.2% over the past three months, it is easy to disregard HF Sinclair (NYSE:DINO). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to HF Sinclair's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for HF Sinclair
How Is ROE Calculated?
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 HF Sinclair is:
16% = US$1.6b ÷ US$10b (Based on the trailing twelve months to March 2024).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.16 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
A Side By Side comparison of HF Sinclair's Earnings Growth And 16% ROE
At first glance, HF Sinclair seems to have a decent ROE. Even when compared to the industry average of 18% the company's ROE looks quite decent. Consequently, this likely laid the ground for the impressive net income growth of 37% seen over the past five years by HF Sinclair. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
We then performed a comparison between HF Sinclair's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 38% in the same 5-year period.
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. Has the market priced in the future outlook for DINO? You can find out in our latest intrinsic value infographic research report.
Is HF Sinclair Efficiently Re-investing Its Profits?
HF Sinclair's ' three-year median payout ratio is on the lower side at 11% implying that it is retaining a higher percentage (89%) 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.
Besides, HF Sinclair has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 33% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 10%) over the same period.
Conclusion
Overall, we are quite pleased with HF Sinclair's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. 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 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.
