Weibo’s ROE today.” data-reactid=”28″ type=”text”>Most readers would already be aware that Weibo’s (NASDAQ:WB) stock increased significantly by 18% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Weibo’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 other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
How Do You Calculate Return On Equity?
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Weibo is:
17% = US$394m ÷ US$2.3b (Based on the trailing twelve months to March 2020).
The ‘return’ is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.17 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Weibo’s Earnings Growth And 17% ROE
At first glance, Weibo seems to have a decent ROE. Even when compared to the industry average of 15% the company’s ROE looks quite decent. This certainly adds some context to Weibo’s exceptional 48% net income growth seen over the past five years. We reckon that there could also be other factors at play here. Such as – high earnings retention or an efficient management in place.
As a next step, we compared Weibo’s 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 30%.
our latest intrinsic value infographic research report. ” data-reactid=”58″ type=”text”>Earnings growth is an important metric to consider when valuing a stock. 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. Has the market priced in the future outlook for WB? You can find out in our latest intrinsic value infographic research report.
Is Weibo Making Efficient Use Of Its Profits?
Given that Weibo doesn’t pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
report on analyst forecasts for the company to find out more.” data-reactid=”62″ type=”text”>In total, we are pretty happy with Weibo’s performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. 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 company’s future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
This article by Simply Wall St is general in nature. 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.