With its stock down 26% in the past three months, it’s easy to overlook Fox Factory Holding (NASDAQ: FOXF). But if you pay close attention, you might realize that its strong financials could mean the stock could potentially see a long-term rise in value, as the markets generally reward companies in good financial shape. Specifically, we decided to study the ROE of Fox Factory Holding in this article.
Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
Check out our latest analysis for Fox Factory Holding
How to calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, Fox Factory Holding’s ROE is:
18% = $174 million ÷ $949 million (based on trailing 12 months to April 2022).
The “yield” is the amount earned after tax over the last twelve months. This therefore means that for each dollar of investment by its shareholder, the company generates a profit of $0.18.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of Fox Factory Holding’s earnings growth and 18% ROE
For starters, Fox Factory Holding appears to have a respectable ROE. Additionally, the company’s ROE compares quite favorably to the industry average of 14%. Probably because of this, Fox Factory Holding has been able to see an impressive net profit growth of 26% over the past five years. We believe there could be other factors at play here as well. Such as – high revenue retention or effective management in place.
We then compared Fox Factory Holding’s net income growth with the industry and we are glad to see that the company’s growth figure is higher compared to the industry which has a growth rate of 9, 2% over the same period.
Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. Has the market priced in FOXF’s future prospects? You can find out in our latest infographic research report on intrinsic value.
Does Fox Factory Holding effectively reinvest its profits?
Fox Factory Holding does not pay any dividends to its shareholders, which means that the company has reinvested all of its profits back into the business. This is probably what explains the strong earnings growth discussed above.
Overall, we are quite pleased with Fox Factory Holding’s performance. In particular, it is good to see that the company is investing heavily in its business, and together with a high rate of return, this has led to significant growth in its profits. That said, the company’s earnings growth is expected to slow, as expected in current analyst estimates. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.