Profit ratio

Is the weakness in Israel Shipyards Industries Ltd (TLV:ISHI) stock a sign that the market could be wrong given its strong financial outlook?

It’s hard to get excited after watching the recent performance of Israel Shipyards Industries (TLV:ISHI), as its stock is down 12% over the past week. However, stock prices are usually determined by a company’s long-term financial performance, which in this case looks quite promising. In particular, we will pay attention to the ROE of Israel Shipyards Industries today.

ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

Check out our latest analysis for Israel Shipyards Industries

How to calculate return on equity?

ROE can be calculated using the formula:

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

So, based on the above formula, the ROE for Israel Shipyards Industries is:

16% = ₪124 million ÷ ₪764 million (based on the last twelve months to March 2022).

The “yield” is the amount earned after tax over the last twelve months. Another way to think about this is that for every 1₪ worth of equity, the company was able to earn 0.16₪ in profit.

What does ROE have to do with earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

Israel Shipyards Industries profit growth and ROE of 16%

For starters, Israel Shipyards Industries’ ROE looks acceptable. Especially when compared to the industry average of 6.1%, the company’s ROE looks quite impressive. This likely laid the foundation for Israel Shipyards Industries’ moderate 12% net income growth seen over the past five years.

Then, comparing with the industry net income growth, we found that the growth of Israel Shipyards Industries is quite high compared to the average industry growth of 7.4% over the same period. , which is great to see.

TASE: ISHI Past Earnings Growth June 14, 2022

Earnings growth is an important metric to consider when evaluating 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 will help him determine if the future of the stock looks bright or ominous. If you’re wondering about the valuation of Israel Shipyards Industries, check out this indicator of its price/earnings ratio, relative to its industry.

Does Israel Shipyards Industries effectively reinvest its profits?

With a three-year median payout ratio of 31% (implying the company retains 69% of its earnings), it appears that Israel Shipyards Industries is effectively reinvesting to see respectable earnings growth and paying a dividend. which is well covered.

In addition to seeing earnings growth, Israel Shipyards Industries has only recently started paying dividends. It is quite possible that the company was trying to impress its shareholders.

Conclusion

Overall, we are quite satisfied with the performance of Israel Shipyards Industries. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. If the company continues to increase earnings as it has, it could have a positive impact on its share price given how earnings per share influence prices over the long term. Remember that the price of a stock also depends on the perceived risk. Therefore, investors should be aware of the risks involved before investing in a company. Our risk dashboard would have the 2 risks we identified for Israel Shipyards Industries.

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