Yahoo Finance Ocean Wilsons Holdings Limited's (LON:OCN) Stock Has Shown A Decent Performance: Have Financials A Role To Play?
Most readers would already know that Ocean Wilsons Holdings' (LON:OCN) stock increased by 7.8% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Ocean Wilsons Holdings' 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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
See our latest analysis for Ocean Wilsons Holdings
How Do You Calculate Return On Equity?
ROE can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Ocean Wilsons Holdings is:
13% = US$103m ÷ US$816m (Based on the trailing twelve months to December 2023).
The 'return' is the income the business earned over the last year. That means that for every £1 worth of shareholders' equity, the company generated £0.13 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.
A Side By Side comparison of Ocean Wilsons Holdings' Earnings Growth And 13% ROE
At first glance, Ocean Wilsons Holdings seems to have a decent ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. Despite the modest returns, Ocean Wilsons Holdings' five year net income growth was quite low, averaging at only 3.3%. A few likely reasons that could be keeping earnings growth low are - the company has a high payout ratio or the business has allocated capital poorly, for instance.
As a next step, we compared Ocean Wilsons Holdings' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 4.3% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Ocean Wilsons Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Ocean Wilsons Holdings Making Efficient Use Of Its Profits?
Despite having a moderate three-year median payout ratio of 39% (implying that the company retains the remaining 61% of its income), Ocean Wilsons Holdings' earnings growth was quite low. So there could be some other explanation in that regard. For instance, the company's business may be deteriorating.
Additionally, Ocean Wilsons Holdings has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 43%.
Summary
On the whole, we do feel that Ocean Wilsons Holdings has some positive attributes. Yet, the low earnings growth is a bit concerning, especially given that the company has a high rate of return and is reinvesting ma huge portion of its profits. By the looks of it, there could be some other factors, not necessarily in control of the business, that's preventing growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
