Are GLOBALFOUNDRIES Inc. (NASDAQ:GFS) fundamentals good enough to warrant a buy given the stock’s recent weakness?

GLOBALFOUNDRIES (NASDAQ:GFS) had a tough week with its stock price down 12%. But if you pay close attention, you might find that its leading financial indicators look pretty decent, which could mean the stock could potentially rise in the long run as markets generally reward more resilient long-term fundamentals. We will pay particular attention to GLOBALFOUNDRIES’ RE today.

Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

See our latest analysis for GLOBALFOUNDRIES

How is ROE calculated?

Return on equity can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for GLOBALFOUNDRIES is:

0.6% = $51 million ÷ $8.3 billion (based on trailing 12 months to March 2022).

The “yield” is the profit of the last twelve months. This means that for every dollar of shareholders’ equity, the company generated $0.01 in profit.

Why is ROE important for earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.

A side-by-side comparison of GLOBALFOUNDRIES earnings growth and ROE of 0.6%

It is difficult to say that the ROE of GLOBALFOUNDRIES is very good in itself. Even compared to the industry average of 19%, the ROE figure is quite disappointing. Despite this, surprisingly, GLOBALFOUNDRIES has experienced an exceptional net income growth of 62% over the past five years. We believe there could be other aspects that positively influence the company’s earnings growth. Such as – high revenue retention or effective management in place.

As a next step, we benchmarked GLOBALFOUNDRIES’ net income growth with the industry, and fortunately, we found that the growth seen by the company is higher than the industry average growth of 24%.

past earnings-growth

Earnings growth is an important metric to consider when evaluating a stock. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. Is GFS correctly rated? This business intrinsic value infographic has everything you need to know.

Does GLOBALFOUNDRIES use its profits efficiently?

Since GLOBALFOUNDRIES does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.

Conclusion

All in all, it seems that GLOBALFOUNDRIES has positive aspects for its business. Despite its low rate of return, the fact that the company reinvests a very large portion of its profits back into its business no doubt contributed to the strong growth in its profits. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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