JD Sports Fashion’s (LON:JD.) recent accomplishments are hardly to get you excited. The stock has fallen 5.7% over the past three months. However, stock prices are usually driven by a company’s long-term performance, so this case looks very promising. In particular, I would like to pay attention to the ROE of JD Sports Fashion today.
ROE or Return on Equity is a useful tool for evaluating how effectively a company is able to generate returns on the investment it receives from its shareholders. In other words, it is a rate of return that measures the rate of return on capital provided by the company’s shareholders.
See the latest analysis from JD Sports Fashion
How to calculate return on equity
of Formula for Return on Equity teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
So, based on the formula above, JD Sports Fashion’s ROE would be:
15% = GBP 399 million ÷ GBP 2.7 billion (based on the last 12 months to July 2022).
“Return” is your profit over the last 12 months. One way he conceptualizes this is that for every £1 of stockholders’ equity held by the company, the company made a profit of his £0.15.
Why ROE Is Important to Profit Growth
It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Next, the company should assess how much of its earnings will be reinvested or “retained” for future growth. This will give you an idea about the company’s growth potential. Assuming everything else is equal, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.
Side-by-side comparison of JD Sports Fashion’s revenue growth rate and ROE of 15%
In the first place, JD Sports Fashion’s ROE seems to be reasonable. Moreover, his ROE for the company matches the industry average of 18%. This probably explains, among other factors, JD Sports Fashion’s modest 10% growth over the past five years.
We then compared JD Sports Fashion’s net profit growth with the industry and found that the company had a higher growth rate compared to the industry, which grew 7.2% over the same period.
Earnings growth is a big factor in stock valuations. It is important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). Doing so will help establish whether the stock’s future looks promising or ominous. If you’re curious about JD Sports Fashion’s valuation, check out this gauge of its price-to-earnings ratio relative to the industry.
Is JD Sports Fashion Putting Profits To Good Use?
JD Sports Fashion’s three-year average payout ratio is low at 4.0%, while retaining the remaining 96% of earnings. This suggests that management is reinvesting most of its profits into growing the business.
Additionally, JD Sports Fashion is determined to continue sharing profits with its shareholders, as can be inferred from its long history of paying dividends for at least ten years. It found that the company’s future payout percentage over the next three years is expected to stabilize at his 4.0%, based on the latest analyst estimates. In any case, JD Sports Fashion’s future ROE is projected to rise to 21%, while the payout ratio is not expected to change much.
Overall, I am very pleased with the performance of JD Sports Fashion. I especially like that the company has reinvested heavily in their business and is delivering a high rate of return. Not surprisingly, this translates into impressive profit growth. A survey of current analyst estimates found that analysts expect the company to continue its recent streak of growth. Are these analyst expectations based on broader industry expectations or company fundamentals? Click here to go to our analyst predictions page for the company. increase.
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