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Is the recent share performance of Winpak Ltd. (TSE: WPK) a reflection of its financial health?
Most readers already know that Winpak (TSE:WPK) shares rose 3.7% last month. Given that the market rewards strong financials over the long term, we wonder if that will be the case in this case. Specifically, we decided to study Winpak ROE in this article.
Return on equity or ROE is an important factor for a shareholder to consider because it indicates how effectively their capital is being reinvested. Simply put, it is used to evaluate the profitability of a company in relation to its share capital.
Check out our latest review for Winpak
How is ROE calculated?
O formula for return on equity It is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
Therefore, based on the above formula, Winpak’s ROE is:
10% = US$145m ÷ US$1.4b (Based on trailing twelve months to March 2024).
The ‘return’ refers to a company’s profits over the last year. So, this means that for every CA$1 of investment by its shareholders, the company generates a profit of CA$0.10.
Why is ROE important for earnings growth?
We have already established that ROE serves as an efficient profit-generating indicator for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain”, we can then assess a company’s future ability to generate profits. Generally speaking, all other things being equal, companies with a high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.
Winpak earnings growth and 10% ROE
At first glance, Winpak appears to have a decent ROE. And comparing with the industry, we found that the industry average ROE is similar at 10%. Consequently, this probably laid the foundation for the decent 6.3% growth seen over the last five years by Winpak.
We then performed a comparison of Winpak’s net profit growth with that of the industry, which revealed that the company’s growth is similar to the industry average growth of 5.9% over the same 5-year period.
past profit growth
Earnings growth is an important metric to consider when valuing a stock. The investor should attempt to establish whether the expected growth or decline in earnings, whatever the case may be, is priced in. This will help you determine whether the stock’s future looks promising or ominous. How much is WPK worth today? O intrinsic value infographic in our free research report helps visualize whether WPK is currently mispriced by the market.
Is Winpak reinvesting its profits efficiently?
Winpak’s three-year average shareholder payout ratio is 4.5% (implying that it retains 95% of its income), which is lower, so it appears that management is heavily reinvesting profits to make grow your business.
The story continues
Furthermore, Winpak has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.
Conclusion
In total, we are very happy with the performance of Winpak. Particularly, we like that the company is reinvesting heavily in its business and with a high rate of return. Unsurprisingly, this has led to impressive profit growth. That said, the company’s earnings growth is expected to slow, as predicted by current analyst estimates. To learn more about the company’s future earnings growth forecasts, take a look at this free report on analyst forecasts for the company to find out more.
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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 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St has no position in any of the stocks mentioned.