Yahoo Finance Ryerson Holding Corporation (NYSE:RYI) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?
Ryerson Holding (NYSE:RYI) has had a rough three months with its share price down 28%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Ryerson Holding's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Ryerson Holding
How Do You Calculate Return On Equity?
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 Ryerson Holding is:
10% = US$92m ÷ US$897m (Based on the trailing twelve months to March 2024).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.10 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. 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.
Ryerson Holding's Earnings Growth And 10% ROE
When you first look at it, Ryerson Holding's ROE doesn't look that attractive. Yet, a closer study shows that the company's ROE is similar to the industry average of 9.8%. Particularly, the exceptional 25% net income growth seen by Ryerson Holding over the past five years is pretty remarkable. Considering the moderately low ROE, it is quite possible that there might be some other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.
As a next step, we compared Ryerson Holding's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 25% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Ryerson Holding fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Ryerson Holding Making Efficient Use Of Its Profits?
Ryerson Holding has a really low three-year median payout ratio of 5.1%, meaning that it has the remaining 95% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.
Additionally, Ryerson Holding has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
Overall, we feel that Ryerson Holding certainly does have some positive factors to consider. Despite its low rate of return, the fact that the company reinvests a very high portion of its profits into its business, no doubt contributed to its high earnings growth. While we won't completely dismiss the company, what we would do, is try to ascertain how risky the business is to make a more informed decision around the company. Our risks dashboard would have the 4 risks we have identified for Ryerson Holding.
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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.
