Andlauer Healthcare Group (TSE:AND) has had a great run on the share market with its stock up by a significant 5.9% over the last week. 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 Andlauer Healthcare Group’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.
View our latest analysis for Andlauer Healthcare Group
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 Andlauer Healthcare Group is:
26% = CA$95m ÷ CA$371m (Based on the trailing twelve months to March 2022).
The ‘return’ is the yearly profit. That means that for every CA$1 worth of shareholders’ equity, the company generated CA$0.26 in profit.
What Is The Relationship Between ROE And 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. 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.
Andlauer Healthcare Group’s Earnings Growth And 26% ROE
Firstly, we acknowledge that Andlauer Healthcare Group has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 7.3% also doesn’t go unnoticed by us. As a result, Andlauer Healthcare Group’s exceptional 34% 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 Andlauer Healthcare Group’s growth is quite high when compared to the industry average growth of 17% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. What is AND worth today? The intrinsic value infographic in our free research report helps visualize whether AND is currently mispriced by the market.
Is Andlauer Healthcare Group Efficiently Re-investing Its Profits?
Andlauer Healthcare Group’s ‘ three-year median payout ratio is on the lower side at 14% implying that it is retaining a higher percentage (86%) of its profits. So it looks like Andlauer Healthcare Group is reinvesting profits heavily to grow its business, which shows in its earnings growth.
While Andlauer Healthcare Group has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 15%.
Overall, we are quite pleased with Andlauer Healthcare Group’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. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Remember, the price of a stock is also dependent on the perceived risk. Therefore investors must keep themselves informed about the risks involved before investing in any company. You can see the 3 risks we have identified for Andlauer Healthcare Group by visiting our risks dashboard for free on our platform here.
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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.