Yahoo Finance Are Robust Financials Driving The Recent Rally In Boise Cascade Company's (NYSE:BCC) Stock?
Boise Cascade's (NYSE:BCC) stock is up by a considerable 17% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Boise Cascade's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for Boise Cascade
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Boise Cascade is:
53% = US$866m ÷ US$1.6b (Based on the trailing twelve months to March 2022).
The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.53.
What Is The Relationship Between ROE And 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Boise Cascade's Earnings Growth And 53% ROE
First thing first, we like that Boise Cascade has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 23% which is quite remarkable. Under the circumstances, Boise Cascade's considerable five year net income growth of 61% was to be expected.
As a next step, we compared Boise Cascade's 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 15%.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is BCC worth today? The intrinsic value infographic in our free research report helps visualize whether BCC is currently mispriced by the market.
Is Boise Cascade Efficiently Re-investing Its Profits?
Boise Cascade's ' three-year median payout ratio is on the lower side at 2.8% implying that it is retaining a higher percentage (97%) of its profits. So it looks like Boise Cascade is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Besides, Boise Cascade has been paying dividends over a period of five years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 8.6% over the next three years.
Conclusion
In total, we are pretty happy with Boise Cascade's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. 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.
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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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