Yahoo Finance Do Its Financials Have Any Role To Play In Driving Marine Products Corporation's (NYSE:MPX) Stock Up Recently?
Marine Products (NYSE:MPX) has had a great run on the share market with its stock up by a significant 11% over the last three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Specifically, we decided to study Marine Products' ROE in this article.
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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
View our latest analysis for Marine Products
How To Calculate Return On Equity?
ROE 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 Marine Products is:
29% = US$29m ÷ US$99m (Based on the trailing twelve months to December 2021).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.29 in profit.
Why Is ROE Important For 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 Marine Products' Earnings Growth And 29% ROE
First thing first, we like that Marine Products has an impressive ROE. Further, even comparing with the industry average if 30%, the company's ROE is quite respectable. The high ROE therefore is what most likely laid the ground for the decent growth of 5.1% seen over the past five years by Marine Products.
We then compared Marine Products' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 23% in the same period, which is a bit concerning.
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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Marine Products is trading on a high P/E or a low P/E, relative to its industry.
Is Marine Products Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 56% (or a retention ratio of 44%) for Marine Products suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Moreover, Marine Products is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.
Conclusion
Overall, we feel that Marine Products certainly does have some positive factors to consider. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. So far, we've only made a quick discussion around the company's earnings growth. You can do your own research on Marine Products and see how it has performed in the past by looking at this FREE detailed graph of past earnings, revenue and cash flows.
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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.
