Should the weakness in Boyd Group Services Inc. (TSE: BYD) shares be taken as a sign that the market will correct the share price given decent financial data?

It’s hard to get excited after looking at the recent performance of Boyd Group Services (TSE: BYD), as its stock has fallen 18% in the past three months. 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. In this article, we have decided to focus on the ROE of Boyd Group Services.

Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how efficiently their capital is being reinvested. In other words, it reveals the company’s success in turning shareholders’ investments into profits.

Check out our latest review for Boyd Group Services

How is the ROE calculated?

the formula for ROE is:

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

Thus, based on the above formula, the ROE for Boyd Group Services is:

5.0% = US $ 36 million ÷ US $ 723 million (based on the last twelve months to September 2021).

The “return” is the amount earned after tax over the past twelve months. This therefore means that for every CAD $ 1 invested by its shareholder, the company generates a profit of CAD $ 0.05.

What is the relationship between ROE and profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. Based on how much of those profits the company reinvests or “withholds” and its efficiency, we are then able to assess a company’s profit growth potential. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

Boyd Group Services profit growth and 5.0% ROE

When you first watch it, Boyd Group Services’ ROE doesn’t look so appealing. Then, compared to the industry average ROE of 6.7%, the company’s ROE leaves us even less enthusiastic. However, the moderate 7.3% net income growth seen by Boyd Group Services over the past five years is definitely positive. We think there might be other factors at play here. Such as – high profit retention or effective management in place.

As a next step, we compared Boyd Group Services’ net income growth with the industry and were disappointed to see that the company’s growth is below the industry average growth of 23% over the past year. same period.

TSX: BYD Past earnings growth as of December 31, 2021

Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. This then helps them determine whether the stock is set for a bright or dark future. Has the market assessed BYD’s future prospects? You can find out in our latest Intrinsic Value infographic research report.

Is Boyd Group Services Efficiently Reinvesting Profits?

In the case of Boyd Group Services, its respectable profit growth can likely be explained by its low three-year median payout rate of 13% (or an 87% retention rate), which suggests the company is investing most of his profits to grow his business.

In addition, Boyd Group Services 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. Our latest analyst data shows the company’s future payout ratio over the next three years is expected to be around 12%. Still, forecasts suggest that Boyd Group Services’ future ROE will increase to 9.6%, although the company’s payout ratio is not expected to change much.

Conclusion

Overall, we think Boyd Group Services has some positive attributes. Namely, his respectable profit growth, which he achieved by keeping most of his profits. However, given the low ROE, investors may not benefit from all of this reinvestment after all. That said, the latest forecasts from industry analysts show that the company’s profits are expected to pick up. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.

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 any stock 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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