Most readers already know that Qiagen (NYSE:QGEN) stock is up 4.5% in the past three months. Given its impressive performance, we decided to study the company’s key financial indicators, as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Qiagen’s ROE in this article.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In other words, it reveals the company’s success in turning shareholders’ investments into profits.
See our latest analysis for Qiagen
How to calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Qiagen is:
17% = $539 million ÷ $3.2 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 $0.17 in profit.
What does ROE have to do with earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. 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.
Qiagen earnings growth and ROE of 17%
For starters, Qiagen’s ROE looks acceptable. Additionally, the company’s ROE is similar to the industry average of 17%. Therefore, this likely laid the foundation for Qiagen’s impressive 47% net income growth over the past five years. We believe that there could also be other aspects that positively influence the company’s earnings growth. For example, the business has a low payout ratio or is efficiently managed.
As a next step, we benchmarked Qiagen’s net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 35%.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. What is QGEN worth today? The intrinsic value infographic in our free research report visualizes whether QGEN is currently being mispriced by the market.
Is Qiagen effectively using its profits?
Since Qiagen pays no dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
Overall, we are quite satisfied with Qiagen’s performance. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization 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.