Is UFP Industries, Inc.’s (NASDAQ: UFPI) latest market performance a reflection of its financial health?


UFP Industries (NASDAQ: UFPI) had a good run on the stock market, with its share rising significantly by 21% over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market results. In particular, we will pay particular attention to the ROE of UFP Industries today.

Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In simpler terms, it measures a company’s profitability relative to equity.

How to calculate return on equity?

Return on equity can be calculated using the formula:

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

Thus, based on the above formula, the ROE for UFP Industries is:

25% = US $ 470 million ÷ US $ 1.9 billion (based on the last twelve months to September 2021).

The “return” is the profit of the last twelve months. One way to conceptualize this is that for every $ 1 of shareholder capital it has, the company has made $ 0.25 in profit.

Why is ROE important for profit growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on the portion of its profits that 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 the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

UFP Industries profit growth and 25% ROE

First of all, we love that UFP Industries has an impressive ROE. Second, a comparison with the industry-reported average ROE of 20% doesn’t go unnoticed for us either. Under these circumstances, a considerable growth in UFP Industries’ net income of 29% over five years was to be expected.

We then compared the net income growth of UFP Industries with the industry and we are delighted to see that the growth number of the company is higher than that of the industry which has a growth rate of 9, 9% over the same period.

NasdaqGS: UFPI Past Profit Growth November 22, 2021

Profit growth is a huge factor in the valuation of stocks. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This then helps them determine whether the stock is set for a bright or dark future. Is UFPI valued enough? This business intrinsic value infographic has everything you need to know.

Does UFP Industries use its profits efficiently?

UFP Industries has a very low three-year median payout rate of 14%, which means it has the remaining 86% to reinvest in its business. This suggests that management is reinvesting most of the profits to grow the business, as evidenced by the growth seen by the business.

In addition, UFP Industries has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. Estimates from existing analysts suggest that the company’s future payout ratio is expected to drop to 8.3% over the next three years. Either way, the ROE is not expected to change much for the company despite the expected lower payout ratio.

Conclusion

All in all, we are quite satisfied with the performance of UFP Industries. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. However, according to the latest forecast from industry analysts, the company’s profits are expected to decline in the future. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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