ICU Medical (NASDAQ: ICUI) has had a strong run in the stock market with a significant increase in its stock of 18% in the past three months. As most know, fundamentals typically guide long-term 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 one. price movement. In this article, we have decided to focus on the ROE of ICU Medical.
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 other words, it reveals the company’s success in turning shareholders’ investments into profits.
See our latest review for ICU Medical
How to calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE for ICU Medical is:
6.6% = US $ 103 million Ã· US $ 1.6 billion (based on the last twelve months to June 2021).
The âreturnâ is the amount earned after tax over the past twelve months. Another way to look at this is that for every dollar of equity, the company was able to make $ 0.07 in profit.
Why is ROE important for profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on how much of those profits the company reinvests or âwithholdsâ and how efficiently it does so, we are then able to assess a company’s profit growth potential. 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 ICU Medical’s 6.6% profit growth and ROE
At first glance, ICU Medical’s ROE isn’t much to say. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 10%. However, we can see that ICU Medical has seen modest net income growth of 11% over the past five years. We think there might be other factors at play here. Such as – high profit retention or effective management in place.
In the next step, we compared ICU Medical’s net income growth with the industry and found that the company has a similar growth figure compared to the industry average growth rate of 14% over the course of from 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. In doing so, he’ll have an idea if the action is heading for clear blue waters or swampy waters ahead. Has the market taken into account ICUI’s future prospects? You can find out in our latest Intrinsic Value infographic research report.
Is ICU Medical Efficiently Using Its Retained Earnings?
Since ICU Medical does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to develop its business.
All in all, it seems that ICU Medical has positive aspects for its activities. With a high reinvestment rate, but low ROE, the company has managed to see considerable growth in profits. The latest forecasts from industry analysts show the company is expected to maintain its current growth rate. 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 documents. Simply Wall St has no position in any of the stocks mentioned.
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