Sohu.com (NASDAQ: SOHU) shares have risen 30% in the past three months. As most know, fundamentals generally guide long-term market price movements, so we decided to look at the company’s key financial metrics today to see if they have a role to play in the recent one. price movement. In particular, we will pay close attention to the ROE of Sohu.com today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
Check out our latest analysis for Sohu.com
How do you calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE of Sohu.com is:
7.7% = US $ 93 million ÷ US $ 1.2 billion (based on the last twelve months to June 2021).
The “return” is the amount earned after tax over the past twelve months. Another way to look at this is that for every dollar of equity, the company was able to make $ 0.08 in profit.
Why is ROE important for 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 how efficiently it does so, we are then able to assess a company’s profit growth potential. Assuming everything 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. .
Sohu.com profit growth and 7.7% ROE
When you first watch it, Sohu.com’s ROE doesn’t look so appealing. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 12%. Despite this, surprisingly, Sohu.com has seen an exceptional growth in net income of 28% over the past five years. Thus, there could be other aspects that positively influence the profit growth of the company. For example, the business has a low payout ratio or is managed efficiently.
Then, comparing with the industry net income growth, we found that the growth of Sohu.com is quite high compared to the industry average growth of 15% over the same period, which is great to see.
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 will help them determine whether the future of the stock looks bright or threatening. Is SOHU just valued? This intrinsic business value infographic has everything you need to know.
Is Sohu.com Efficiently Using Its Retained Earnings?
Overall, we think Sohu.com has some positive attributes. With a high reinvestment rate, but a low ROE, the company has managed to see considerable growth in profits. That said, by studying the latest analysts’ forecast, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to decline. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
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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 does not have any position in the mentioned stocks.
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