Monarch Casino & Resort, Inc. (NASDAQ: MCRI) shares recently showed weakness, but the financial outlook looks correct: is the market wrong?

With its stock down 8.7% over the past week, it’s easy to overlook Monarch Casino & Resort (NASDAQ: MCRI). But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. Specifically, we have decided to study the ROE of Monarch Casino & Resort in this article.

Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.

Check out our latest review for Monarch Casino & Resort

How to calculate return on equity?

the formula for ROE is:

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

Thus, based on the above formula, the ROE of the Monarch Casino & Resort is:

7.8% = US $ 30 million ÷ US $ 380 million (based on the last twelve months up to March 2021).

“Return” refers to a company’s profits over the past year. One way to conceptualize this is that for every $ 1 of shareholder capital it has, the company has made $ 0.08 in profit.

What is the relationship between ROE and profit growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ​​the growth potential of the company. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.

Monarch Casino & Resort profit growth and 7.8% ROE

At first glance, Monarch Casino & Resort’s ROE doesn’t look very promising. We then compared the company’s ROE to that of the industry as a whole and were disappointed to find that the ROE is 11% below the industry average. As a result, Monarch Casino & Resort’s stable net income growth over the past five years is no surprise given its lower ROE.

Given that the industry has cut its profits at a rate of 5.8% over the same period, the growth in the company’s net income is quite impressive.

NasdaqGS: MCRI Past Profit Growth June 21, 2021

Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps him determine whether the stock is set for a bright or dark future. If you’re wondering how Monarch Casino & Resort is valued, check out this gauge of its price / earnings ratio, relative to its industry.

Is Monarch Casino & Resort Efficiently Using Its Retained Profits?

summary

All in all, it seems that Monarch Casino & Resort has some positive aspects for its business. Despite its low rate of return, the fact that the company reinvested a very large portion of its profits into its business has undoubtedly contributed to the strong growth in profits. However, the latest analysts’ forecasts show that the company will continue to see its profits increase. 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.

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This Simply Wall St article is general in nature. 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 material. Simply Wall St has no position in the mentioned stocks.
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