It’s hard to get excited after watching the recent performance of Westshore Terminals Investment (TSE:WTE), as its stock is down 15% in the past month. However, a closer look at his healthy finances might make you think again. Since fundamentals generally determine long-term market outcomes, the company is worth looking into. Specifically, we decided to study the ROE of Westshore Terminals Investment in this article.
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 simple terms, it is used to assess the profitability of a company in relation to its equity.
Check out our latest analysis for Westshore Terminals Investment
How do you calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Westshore Terminals Investment is:
14% = C$104 million ÷ C$722 million (based on trailing 12 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 CA$1 of equity, the company was able to make a profit of CA$0.14.
What is the relationship between ROE and earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Westshore Terminals Investment’s earnings growth and 14% ROE
For starters, Westshore Terminals Investment appears to have a respectable ROE. Additionally, the company’s ROE is similar to the industry average of 15%. However, we are curious how Westshore Terminals Investment’s decent returns have still resulted in steady growth for Westshore Terminals Investment over the past five years. So, there could be other aspects that could potentially impede the growth of the business. For example, the company pays a large portion of its profits in the form of dividends or faces competitive pressures.
Then, comparing Westshore Terminals Investment’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 1.4% over the same period. .
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This then helps them determine if the stock is positioned for a bright or bleak future. Is Westshore Terminals Investment correctly priced compared to other companies? These 3 assessment metrics might help you decide.
Does Westshore Terminals Investment use its profits efficiently?
Despite a three-year normal median payout rate of 34% (or a retention rate of 66%), Westshore Terminals Investment has not experienced strong earnings growth. So there could be other factors at play here that could potentially impede growth. For example, the company had to deal with headwinds.
Additionally, Westshore Terminals Investment has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of business growth. ‘company. Looking at current analyst consensus data, we can see that the company’s future payout ratio is expected to reach 139% over the next three years. Therefore, the higher expected payout ratio explains the decline in the company’s expected ROE (to 8.5%) over the same period.
Overall, we are quite satisfied with the performance of Westshore Terminals Investment. In particular, we appreciate the fact that the company is reinvesting heavily in its business, and at a high rate of return. As a result, its decent revenue growth is not surprising. That said, in studying the latest analyst forecasts, we found that while the company has seen growth in past earnings, analysts expect future earnings to decline. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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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.