Could fundamentals be the driving force for action?

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TELUS International (Cda) (NYSE: TIXT) shares have risen 8.7% in the past three months. As most know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company’s key financial metrics today to see if they have a role to play. in the recent price movement. In this article, we have decided to focus on TELUS International (Cda) ROE.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. In simpler terms, it measures a company’s profitability relative to equity.

View our latest analysis for TELUS International (Cda)

How is the ROE calculated?

ROE can be calculated using the formula:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, according to the above formula, the ROE of TELUS International (Cda) is:

4.2% = US $ 68 million ÷ US $ 1.6 billion (based on the last twelve months to June 2021).

The “return” is the income the business has earned over the past year. This means that for every dollar in shareholders’ equity, the company generated $ 0.04 in profit.

What is the relationship between ROE and profit growth?

We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess the profits that the business is reinvesting or “withholding” for future growth, which then gives us an idea of ​​the growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.

A side-by-side comparison of earnings growth and ROE of 4.2% for TELUS International (Cda)

At first glance, TELUS International’s (Cda) ROE doesn’t look so appealing. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 17%. Despite this, surprisingly, TELUS International (Cda) has experienced exceptional net income growth of 20% over the past five years. We think there might be other factors at play here. For example, the business has a low payout ratio or is managed efficiently.

We then compared the growth of TELUS International (Cda) net income with the industry and we are happy to see that the growth number of the company is higher than that of the industry which has a growth rate of 15% over the same period.

past profit growth

Profit growth is a huge factor in the valuation of stocks. It is important for an investor to know whether the market has factored in the expected growth (or decline) in company earnings. By doing this, they will have an idea if the stock is heading for clear blue waters or if swampy waters are ahead of them. Is the TIXT valued enough? This intrinsic business value infographic has everything you need to know.

Is TELUS International (Cda) Efficiently Reinvesting Its Profits?

TELUS International (Cda) does not currently pay any dividends, which essentially means that it has reinvested all of its profits in the business. This certainly contributes to the high number of profit growth we discussed above.

Conclusion

Overall, we believe TELUS International (Cda) has certain strengths. Even despite the low rate of return, the company has shown impressive profit growth by reinvesting heavily in its operations. That said, the latest forecast from industry analysts shows that the company’s profits are expected to pick up. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.

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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