Yahoo Finance Is Revvity, Inc.'s (NYSE:RVTY) Recent Price Movement Underpinned By Its Weak Fundamentals?
It is hard to get excited after looking at Revvity's (NYSE:RVTY) recent performance, when its stock has declined 6.6% over the past month. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Particularly, we will be paying attention to Revvity's ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Revvity
How To Calculate Return On Equity?
Return on equity 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 Revvity is:
2.3% = US$183m ÷ US$7.8b (Based on the trailing twelve months to March 2024).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.02 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. 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. 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.
Revvity's Earnings Growth And 2.3% ROE
It is quite clear that Revvity's ROE is rather low. Not just that, even compared to the industry average of 12%, the company's ROE is entirely unremarkable. As a result, Revvity's flat earnings over the past five years doesn't come as a surprise given its lower ROE.
We then compared Revvity's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 17% in the same 5-year period, which is a bit concerning.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. 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 Revvity's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Revvity Efficiently Re-investing Its Profits?
Revvity has a low three-year median payout ratio of 5.9% (or a retention ratio of 94%) but the negligible earnings growth number doesn't reflect this as high growth usually follows high profit retention.
In addition, Revvity has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 4.6% over the next three years. As a result, the expected drop in Revvity's payout ratio explains the anticipated rise in the company's future ROE to 7.9%, over the same period.
Summary
In total, we're a bit ambivalent about Revvity's performance. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.
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