Most readers already know that SpartanNash (NASDAQ: SPTN) stock has risen significantly 19% in the past three months. Since stock prices are generally aligned with a company’s long-term financial performance, we decided to take a closer look at its financial metrics to see if they had a role to play in the recent price movement. . In particular, we will be paying special attention to the ROE of SpartanNash today.
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.
How do you calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE of SpartanNash is:
9.0% = US $ 68 million Ã· US $ 756 million (based on the last twelve months to July 2021).
The “return” is the income the business has earned over the past year. Another way of thinking is that for every dollar in equity, the company was able to make $ 0.09 in profit.
What does ROE have to do with 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 ââthe 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.
A side-by-side comparison of SpartanNash’s 9.0% profit growth and ROE
At first glance, SpartanNash’s ROE doesn’t look very promising. However, its ROE is similar to the industry average of 11%, so we won’t dismiss the company completely. On the other hand, SpartanNash has seen moderate net profit growth of 13% over the past five years. Considering the fact that the ROE is not particularly high, we believe that there could also be other factors at play that could influence the growth of the company. Such as – high profit retention or effective management in place.
In the next step, we compared SpartanNash’s net income growth with the industry and luckily we found that the growth observed by the company is above the industry average growth of 7.9%. .
NasdaqGS: SPTN Past Profit Growth on November 2, 2021
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So you may want check if SpartanNash is trading on a high P / E or a low P / E, compared to its industry.
Is SpartanNash effectively reinvesting its profits?
SpartanNash has a three-year median payout ratio of 49%, which means it keeps the remaining 51% of its profits. This suggests that its dividend is well hedged, and given the decent growth the company is seeing, it looks like management is reinvesting its earnings in an efficient manner.
In addition, SpartanNash is committed to continuing to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years. Based on the latest analyst estimates, we found that the company’s future payout ratio over the next three years is expected to hold steady at 42%. As a result, forecasts suggest that SpartanNash’s future ROE will be 8.9%, which is again similar to the current ROE.
Overall, we think SpartanNash certainly has some positive factors to consider. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. 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 material. Simply Wall St has no position in the mentioned stocks.
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