Most readers will already know that shares of Seanergy Maritime Holdings (NASDAQ:SHIP) are up a significant 30% in the past month. As most know, fundamentals are what generally guide market price movements over the long term, so we decided to take a look at key financial indicators in business today to see if they have a role to play. play in the recent price movement. Specifically, we decided to study the ROE of Seanergy Maritime Holdings in this article.
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 other words, it reveals the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for Seanergy Maritime Holdings
How to calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Seanergy Maritime Holdings is:
8.3% = $18 million ÷ $222 million (based on trailing 12 months to September 2021).
“Yield” is the income the business has earned over the past year. This means that for every dollar of shareholders’ equity, the company generated $0.08 in profit.
What is the relationship between ROE and 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 those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and earnings retention, the higher a company’s growth rate compared to companies that don’t necessarily exhibit these characteristics.
Seanergy Maritime Holdings earnings growth and ROE of 8.3%
At first glance, Seanergy Maritime Holdings’ ROE isn’t much to tell. Then, compared to the industry average ROE of 19%, the company’s ROE leaves us even less excited. Despite this, Seanergy Maritime Holdings has been able to grow its net income significantly, at a rate of 22% over the past five years. We believe there could be other factors at play here. Such as – high revenue retention or effective management in place.
We then compared Seanergy Maritime Holdings’ net income growth with the industry and found that the company’s growth figure is below the industry average growth rate of 34% over the same period, which is a little worrying.
Earnings growth is an important metric to consider when evaluating 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. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. If you’re wondering about the valuation of Seanergy Maritime Holdings, check out this indicator of its price/earnings ratio, relative to its sector.
Does Seanergy Maritime Holdings use its profits efficiently?
Seanergy Maritime Holdings does not pay any dividends to its shareholders, meaning the company has reinvested all of its earnings back into the business. This is probably what explains the strong earnings growth discussed above.
Overall, we think Seanergy Maritime Holdings certainly has positive factors to consider. Namely, its respectable earnings growth, which it achieved while retaining most of its earnings. However, given the low ROE, investors may not be benefiting from all that reinvestment after all. That said, the latest analyst forecasts show that the company will continue to see earnings expansion. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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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.