Advertisement
UK markets close in 1 hour 9 minutes

  • FTSE 100

    8,046.42
    +6.04 (+0.08%)
     

  • FTSE 250

    19,549.15
    -170.22 (-0.86%)
     

  • AIM

    752.56
    -2.13 (-0.28%)
     

  • GBP/EUR

    1.1657
    +0.0012 (+0.10%)
     

  • GBP/USD

    1.2493
    +0.0031 (+0.25%)
     

  • Bitcoin GBP

    51,071.58
    -1,816.11 (-3.43%)
     

  • CMC Crypto 200

    1,371.29
    -11.29 (-0.82%)
     

  • S&P 500

    5,008.27
    -63.36 (-1.25%)
     

  • DOW

    37,818.67
    -642.25 (-1.67%)
     

  • CRUDE OIL

    82.52
    -0.29 (-0.35%)
     

  • GOLD FUTURES

    2,332.80
    -5.60 (-0.24%)
     

  • NIKKEI 225

    37,628.48
    -831.60 (-2.16%)
     

  • HANG SENG

    17,284.54
    +83.27 (+0.48%)
     

  • DAX

    17,809.81
    -278.89 (-1.54%)
     

  • CAC 40

    7,958.98
    -132.88 (-1.64%)
     
Stocks:

Trending tickers

Microsoft, Alphabet, Anglo American, IBM, Astrazeneca, Unilever and Sainsbury's

Cohort plc's (LON:CHRT) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

Simply Wall St
·4-min read

Cohort's (LON:CHRT) stock up by 3.5% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Cohort's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Cohort

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

ADVERTISEMENT

So, based on the above formula, the ROE for Cohort is:

12% = UK£9.3m ÷ UK£79m (Based on the trailing twelve months to October 2020).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each £1 of shareholders' capital it has, the company made £0.12 in profit.

What Is The Relationship Between ROE And 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.

Cohort's Earnings Growth And 12% ROE

At first glance, Cohort seems to have a decent ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 12%. This probably goes some way in explaining Cohort's moderate 9.9% growth over the past five years amongst other factors.

We then performed a comparison between Cohort's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 9.7% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. What is CHRT worth today? The intrinsic value infographic in our free research report helps visualize whether CHRT is currently mispriced by the market.

Is Cohort Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 50% (implying that the company retains 50% of its profits), it seems that Cohort is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Additionally, Cohort has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 31% over the next three years. As a result, the expected drop in Cohort's payout ratio explains the anticipated rise in the company's future ROE to 17%, over the same period.

Summary

On the whole, we feel that Cohort's 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. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.