Delta Israel Brands (TLV:DLTI) has had a strong run in the stock market with a significant 11% increase in its shares over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In particular, we will pay attention to the ROE of Delta Israel Brands today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In simpler terms, it measures a company’s profitability relative to equity.
Check out our latest analysis for Delta Israel Brands
How do you calculate return on equity?
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 Delta Israel Brands is:
31% = ₪130m ÷ ₪418m (Based on the last twelve months to September 2021).
The “yield” is the profit of the last twelve months. This therefore means that for every ₪ 1 of its shareholder’s investment, the company generates a profit of 0.31 ₪.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
A side-by-side comparison of Delta Israel Brands’ earnings growth and 31% ROE
First, we appreciate that Delta Israel Brands has an impressive ROE. Additionally, the company’s ROE is above the industry average of 17%, which is quite remarkable. As a result, Delta Israel Brands’ outstanding 41% net income growth over the past five years comes as no surprise.
Then, comparing with the industry net income growth, we found that the growth of Delta Israel Brands is quite high compared to the average industry growth of 12% over the same period, which is great to see.
Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This then helps them determine if the stock is positioned for a bright or bleak future. Has the market priced in the future prospects of DLTI? You can find out in our latest infographic research report on intrinsic value
Does Delta Israel Brands effectively reinvest its profits?
Delta Israel Brands has a very low three-year median payout ratio of 13%, meaning it has the remaining 87% left to reinvest in its business. So it looks like management is massively reinvesting earnings to grow their business, which is reflected in their earnings growth.
While Delta Israel Brands has been increasing its profits, it only recently started paying dividends, which likely means the company has decided to impress new and existing shareholders with a dividend.
Overall, we are quite satisfied with the performance of Delta Israel Brands. In particular, it is good to see that the company is investing heavily in its business and, along with a high rate of return, this has resulted in significant growth in its profits.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.