Fortress Minerals’ (Catalist:OAJ) stock up by 8.8% over the past three months. Given its impressive performance, we decided to study the company’s key financial indicators as a company’s long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Fortress Minerals’ ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Fortress Minerals
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Fortress Minerals is:
13% = US$9.5m ÷ US$73m (Based on the trailing twelve months to November 2023).
The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every SGD1 worth of equity, the company was able to earn SGD0.13 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Fortress Minerals’ Earnings Growth And 13% ROE
To start with, Fortress Minerals’ ROE looks acceptable. On comparing with the average industry ROE of 8.3% the company’s ROE looks pretty remarkable. This probably laid the ground for Fortress Minerals’ moderate 18% net income growth seen over the past five years.
Next, on comparing Fortress Minerals’ net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 22% over the last few years.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). Doing so will help them establish if the stock’s future looks promising or ominous. Is Fortress Minerals fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Fortress Minerals Making Efficient Use Of Its Profits?
In Fortress Minerals’ case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 21% (or a retention ratio of 79%), which suggests that the company is investing most of its profits to grow its business.
Moreover, Fortress Minerals is determined to keep sharing its profits with shareholders which we infer from its long history of five years of paying a dividend.
Conclusion
On the whole, we feel that Fortress Minerals’ performance has been quite good. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
