Is the recent stock performance of OneWater Marine Inc. (NASDAQ: ONEW) related to its strong fundamentals?
OneWater Marine (NASDAQ: ONEW) stock has risen 13% over the past month. Since the market typically pays for a company’s long-term fundamentals, we decided to study the company’s KPIs to see if they could influence the market. In particular, we will be paying close attention to OneWater Marine’s ROE today.
Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how efficiently their capital is being reinvested. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
Check out our latest review for OneWater Marine
How is the ROE calculated?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for OneWater Marine is:
42% = US $ 100 million ÷ US $ 236 million (based on the last twelve months to June 2021).
The “return” is the annual profit. One way to conceptualize this is that for every $ 1 of shareholder capital it has, the company has made $ 0.42 in profit.
What is the relationship between ROE and profit growth?
So far we’ve learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of the growth potential of the company. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
A side-by-side comparison of OneWater Marine’s profit growth and 42% ROE
For starters, OneWater Marine has a pretty high ROE, which is interesting. Second, even compared to the industry average of 29%, the company’s ROE is quite impressive. As a result, OneWater Marine’s exceptional 61% net profit growth seen over the past five years is no surprise.
We then compared the net income growth of OneWater Marine with the industry and we are delighted to see that the growth number of the company is higher than that of the industry which has a growth rate of 15% at the during the same period.
Profit growth is an important metric to consider when valuing a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. If you’re wondering about OneWater Marine’s valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is OneWater Marine Efficiently Using Its Retained Earnings?
OneWater Marine does not currently pay any dividends, which essentially means it has reinvested all of its profits back into the business. This certainly contributes to the high number of profit growth we discussed above.
Overall, we think OneWater Marine’s performance has been quite good. In particular, we like the fact that the company is reinvesting heavily in its business, and at a high rate of return. Unsurprisingly, this led to impressive profit growth. However, a study of the latest analysts’ forecasts shows that the company is likely to experience a slowdown in future earnings growth. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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