Select Water Solutions' (NYSE:WTTR) stock is up by a considerable 30% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Select Water Solutions' ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Select Water Solutions is:
7.8% = US$69m ÷ US$888m (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.08 in profit.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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 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.
Select Water Solutions' Earnings Growth And 7.8% ROE
At first glance, Select Water Solutions' ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 13%. However, we we're pleasantly surprised to see that Select Water Solutions grew its net income at a significant rate of 44% in the last five years. So, there might be other aspects that are positively influencing the company's earnings 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 Select Water Solutions' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 45% over the last few years.
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. What is WTTR worth today? The intrinsic value infographic in our free research report helps visualize whether WTTR is currently mispriced by the market.
Is Select Water Solutions Using Its Retained Earnings Effectively?
Select Water Solutions' three-year median payout ratio is a pretty moderate 30%, meaning the company retains 70% of its income. By the looks of it, the dividend is well covered and Select Water Solutions is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.
Along with seeing a growth in earnings, Select Water Solutions only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 18% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 16%, over the same period.
Conclusion
In total, it does look like Select Water Solutions has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. 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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一見すると、Select Water SolutionsのROEは非常に有望ではありません。それで、当社のROEを業界全体と比較し、ROEが13%という業界平均よりも低いことに失望しました。ただし、過去5年間にSelect Water Solutionsの当期純利益が44%の大幅な割合で成長したことを喜んで報告できます。そのため、同社の利益成長を積極的に促進している他の側面がある可能性があります。たとえば、同社の経営陣が良い戦略的決定を下した可能性があるか、または同社が低い配当比率を有する可能性があります。
次に、Select Water Solutionsの当期純利益成長を業界と比較すると、同社の報告された成長率は過去数年間の業界平均成長率である45%に近いことがわかりました。
Select Water Solutionsの3年間の中央値配当比率は、かなり控えめな30%であり、同社はその収益の70%を保持しています。見る限り、配当は十分にカバーされており、上記で議論したような例外的な成長を手掛けた結果、Select Water Solutionsは利益を効率的に再投資しています。
さらに、利益の成長を見ると、Select Water Solutionsは最近配当を開始しました。同社は株主に印象を与えることを目的としていた可能性があります。最新のアナリストデータによると、同社の将来の配当比率は次の3年間で18%に低下する予定です。したがって、配当比率の低下は、同期間中同社のROEが16%に向上することを説明しています。
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全体的に、Select Water Solutions はビジネスの一部に潜在的なポジティブ側面があります。過去のものに比べ、高い投資率がありますが、東gが低いため、同社は利益のかなりの拡大を実現しています。それはそうと、最新のアナリスト予測の研究によると、同社の将来の収益成長は鈍化する見込みです。詳細については、同社のアナリスト予測に関する無料のレポートをご覧ください。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。