Yahoo Finance Is Pangaea Logistics Solutions, Ltd.'s (NASDAQ:PANL) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
Most readers would already be aware that Pangaea Logistics Solutions' (NASDAQ:PANL) stock increased significantly by 12% over the past month. 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. Particularly, we will be paying attention to Pangaea Logistics Solutions' 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for Pangaea Logistics Solutions
How Do You Calculate Return On Equity?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Pangaea Logistics Solutions is:
10% = US$38m ÷ US$379m (Based on the trailing twelve months to March 2024).
The 'return' is the income the business earned over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.10.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Pangaea Logistics Solutions' Earnings Growth And 10% ROE
On the face of it, Pangaea Logistics Solutions' ROE is not much to talk about. However, given that the company's ROE is similar to the average industry ROE of 11%, we may spare it some thought. Particularly, the exceptional 29% net income growth seen by Pangaea Logistics Solutions over the past five years is pretty remarkable. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Pangaea Logistics Solutions' reported growth was lower than the industry growth of 45% over the last few years, which is not something we like to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is Pangaea Logistics Solutions fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Pangaea Logistics Solutions Using Its Retained Earnings Effectively?
Pangaea Logistics Solutions has a really low three-year median payout ratio of 13%, meaning that it has the remaining 87% left over to reinvest into its business. So it looks like Pangaea Logistics Solutions is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Additionally, Pangaea Logistics Solutions has paid dividends over a period of five years which means that the company is pretty serious about sharing its profits with shareholders.
Summary
On the whole, we do feel that Pangaea Logistics Solutions has some positive attributes. That is, a decent growth in earnings backed by a high rate of reinvestment. However, we do feel that that earnings growth could have been higher if the business were to improve on the low ROE rate. Especially given how the company is reinvesting a huge chunk of its profits. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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.
