Yahoo Finance Is Johnson Outdoors Inc.'s (NASDAQ:JOUT) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?
Johnson Outdoors' (NASDAQ:JOUT) stock is up by a considerable 5.5% over the past week. 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 Johnson Outdoors' ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Johnson Outdoors
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 Johnson Outdoors is:
12% = US$44m ÷ US$362m (Based on the trailing twelve months to June 2020).
The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.12.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
A Side By Side comparison of Johnson Outdoors' Earnings Growth And 12% ROE
To begin with, Johnson Outdoors seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 15%. This certainly adds some context to Johnson Outdoors' exceptional 28% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Johnson Outdoors' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 22%.
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. Is Johnson Outdoors fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Johnson Outdoors Efficiently Re-investing Its Profits?
Johnson Outdoors' ' three-year median payout ratio is on the lower side at 12% implying that it is retaining a higher percentage (88%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.
Additionally, Johnson Outdoors has paid dividends over a period of seven years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
On the whole, we feel that Johnson Outdoors' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know 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.
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.
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