Yahoo Finance Is Saia, Inc.'s (NASDAQ:SAIA) Latest Stock Performance Being Led By Its Strong Fundamentals?
Most readers would already know that Saia's (NASDAQ:SAIA) stock increased by 9.5% 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 Saia'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.
See our latest analysis for Saia
How Do You 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 Saia is:
23% = US$357m ÷ US$1.6b (Based on the trailing twelve months to December 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.23 in profit.
What Has ROE Got To Do With 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 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.
Saia's Earnings Growth And 23% ROE
Firstly, we acknowledge that Saia has a significantly high ROE. Further, even comparing with the industry average if 26%, the company's ROE is quite respectable. Therefore, it might not be wrong to say that the impressive five year 30% net income growth seen by Saia was probably achieved as a result of the high ROE.
As a next step, we compared Saia'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 11%.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Saia fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Saia Efficiently Re-investing Its Profits?
Saia doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.
Conclusion
Overall, we are quite pleased with Saia's performance. 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. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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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