Yahoo Finance Should Weakness in Haynes International, Inc.'s (NASDAQ:HAYN) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?
Haynes International (NASDAQ:HAYN) has had a rough three months with its share price down 29%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Particularly, we will be paying attention to Haynes International's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Haynes International
How To 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 Haynes International is:
4.7% = US$16m ÷ US$345m (Based on the trailing twelve months to March 2022).
The 'return' refers to a company's earnings over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.05.
What Is The Relationship Between ROE And 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. 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.
Haynes International's Earnings Growth And 4.7% ROE
At first glance, Haynes International's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 21%. Although, we can see that Haynes International saw a modest net income growth of 20% over the past five years. So, the growth in the company's earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.
We then performed a comparison between Haynes International's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 24% in the same period.
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). This then helps them determine if the stock is placed for a bright or bleak future. Is Haynes International fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Haynes International Efficiently Re-investing Its Profits?
The high three-year median payout ratio of 69% (or a retention ratio of 31%) for Haynes International suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Moreover, Haynes International 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.
Summary
Overall, we feel that Haynes International certainly does have some positive factors to consider. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Haynes International's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
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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.
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