Helen of Troy (NASDAQ:HELE) has had a rough month with its share price down 35%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Stock prices are usually driven by a company's financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. Specifically, we decided to study Helen of Troy'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
How Do You Calculate Return On Equity?
ROE 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 Helen of Troy is:
9.8% = US$152m ÷ US$1.5b (Based on the trailing twelve months to May 2024).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.10 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. 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. 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.
Helen of Troy's Earnings Growth And 9.8% ROE
When you first look at it, Helen of Troy's ROE doesn't look that attractive. 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 15%. Given the circumstances, the significant decline in net income by 5.4% seen by Helen of Troy over the last five years is not surprising. We believe that there also might be other aspects that are negatively influencing the company's earnings prospects. Such as - low earnings retention or poor allocation of capital.
However, when we compared Helen of Troy's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 24% in the same period. This is quite worrisome.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. What is HELE worth today? The intrinsic value infographic in our free research report helps visualize whether HELE is currently mispriced by the market.
Is Helen of Troy Making Efficient Use Of Its Profits?
Helen of Troy doesn't pay any regular dividends, meaning that the company is keeping all of its profits, which makes us wonder why it is retaining its earnings if it can't use them to grow its business. It looks like there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.
Summary
On the whole, we feel that the performance shown by Helen of Troy can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Helen of Troy(NASDAQ:HELE)は、株価が35%下落した厳しい月を過ごしています。しかし、私たちは、会社の財務状況がその価格の低下と何らかの関係があるかどうかを判断するために、その財務内容を調べることに決めました。株価は通常、長期間にわたる企業の財務パフォーマンスによって推進されるため、私たちは、会社の財務パフォーマンスにより注目することにしました。具体的には、この記事ではHelen of TroyのROEを研究することにしました。
最初に見ると、Helen of TroyのROEはあまり魅力的ではありません。その後、我々は会社のROEを広範な業界と比較し、ROEが15%の業界平均よりも低いことがわかり、がっかりしました。そのような状況下で、Helen of Troyが過去5年間に5.4%の大幅な純利益減少を見たことは驚くべきことではありません。我々は、資本の低い利益保持率または資本配分の貧弱さなど、企業の収益見通しを否定的に影響する可能性があるその他の要因もあると考えています。
しかしながら、Helen of Troyの成長を業界と比較してみると、会社の収益が縮小している一方で、同じ期間に業界は24%の収益成長を見せています。非常に心配です。
全体的に、Helen of Troyが示したパフォーマンスは多くの解釈の余地があると考えています。ROEが低いため、利益のほとんどを再投資していると思われるにもかかわらず、投資家はすべての再投資から利益を得ることができないかもしれません。収益成長率が低いため、私たちの理論は正しいと示唆しています。ただし、現在のアナリストの予測を見ると、会社の収益成長率は大幅に向上すると予想されています。会社の最新のアナリスト予測についてもっと知りたい場合は、このアナリスト予測の可視化をチェックしてください。
要約
全体的に、Helen of Troyによるパフォーマンスは多くの解釈ができると感じています。利益のほとんどを保有しているにもかかわらず、ROEが低いため、投資家はすべての再投資からの利益を得られない可能性があります。収益成長率が低いため、私たちの理論は正しいと示唆しています。ただし、現在のアナリストの予測を見ると、会社の収益成長率は大幅に向上すると予想されています。会社の最新のアナリスト予測についてもっと知りたい場合は、このアナリスト予測の可視化をチェックしてください。
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。