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Most readers would already be aware that BE Semiconductor Industries' (AMS:BESI) stock increased significantly by 32% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Particularly, we will be paying attention to BE Semiconductor Industries' ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for BE Semiconductor Industries
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for BE Semiconductor Industries is:
41% = €268m ÷ €658m (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.41 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.
A Side By Side comparison of BE Semiconductor Industries' Earnings Growth And 41% ROE
First thing first, we like that BE Semiconductor Industries has an impressive ROE. Second, a comparison with the average ROE reported by the industry of 15% also doesn't go unnoticed by us. This probably laid the groundwork for BE Semiconductor Industries' moderate 17% net income growth seen over the past five years.
As a next step, we compared BE Semiconductor Industries' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 27% in the same period.
Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 BE Semiconductor Industries''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.