Yahoo Finance Haverty Furniture Companies, Inc. (NYSE:HVT) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?
With its stock down 13% over the past month, it is easy to disregard Haverty Furniture Companies (NYSE:HVT). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study Haverty Furniture Companies' ROE in this article.
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.
View our latest analysis for Haverty Furniture Companies
How Is ROE Calculated?
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 Haverty Furniture Companies is:
35% = US$91m ÷ US$256m (Based on the trailing twelve months to December 2021).
The 'return' is the income the business earned over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.35 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Haverty Furniture Companies' Earnings Growth And 35% ROE
To begin with, Haverty Furniture Companies has a pretty high ROE which is interesting. Additionally, a comparison with the average industry ROE of 32% also portrays the company's ROE in a good light. Therefore, it might not be wrong to say that the impressive five year 30% net income growth seen by Haverty Furniture Companies was probably achieved as a result of the high ROE.
As a next step, we compared Haverty Furniture Companies' 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 22%.
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. This then helps them determine if the stock is placed for a bright or bleak future. 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 Haverty Furniture Companies is trading on a high P/E or a low P/E, relative to its industry.
Is Haverty Furniture Companies Making Efficient Use Of Its Profits?
Haverty Furniture Companies has a three-year median payout ratio of 50% (where it is retaining 50% of its income) which is not too low or not too high. So it seems that Haverty Furniture Companies is reinvesting efficiently in a way that it sees impressive growth in its earnings (discussed above) and pays a dividend that's well covered.
Additionally, Haverty Furniture Companies has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
In total, we are pretty happy with Haverty Furniture Companies' 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
