Yahoo Finance Do Its Financials Have Any Role To Play In Driving Eagle Bulk Shipping Inc.'s (NYSE:EGLE) Stock Up Recently?
Eagle Bulk Shipping's (NYSE:EGLE) stock is up by a considerable 17% over the past three months. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Eagle Bulk Shipping's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Eagle Bulk Shipping
How To 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 Eagle Bulk Shipping is:
3.8% = US$23m ÷ US$600m (Based on the trailing twelve months to December 2023).
The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.04 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. 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.
Eagle Bulk Shipping's Earnings Growth And 3.8% ROE
It is quite clear that Eagle Bulk Shipping's ROE is rather low. Not just that, even compared to the industry average of 10%, the company's ROE is entirely unremarkable. However, we we're pleasantly surprised to see that Eagle Bulk Shipping grew its net income at a significant rate of 48% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
We then performed a comparison between Eagle Bulk Shipping's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 48% in the same 5-year period.
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. 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 Eagle Bulk Shipping's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Eagle Bulk Shipping Making Efficient Use Of Its Profits?
Eagle Bulk Shipping's three-year median payout ratio is a pretty moderate 34%, meaning the company retains 66% of its income. So it seems that Eagle Bulk Shipping is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Along with seeing a growth in earnings, Eagle Bulk Shipping only recently started paying dividends. Its quite possible that the company was looking to impress its shareholders. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 98% over the next three years. Despite the higher expected payout ratio, the company's ROE is not expected to change by much.
Conclusion
On the whole, we do feel that Eagle Bulk Shipping has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.
