Steppe Gold (TSE:STGO) has been doing well on the stock market, with its share price up a significant 12% in the last month. Considering the company's impressive performance, we decided to take a closer look at its financial metrics, as a company's financial health over the long term usually drives market results. In particular, I would like to pay attention to Step Gold's ROE today.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
Check out our latest analysis for Steppe Gold.
How do you calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Steppe Gold's ROE is:
30% = USD 14 million ÷ USD 48 million (based on trailing 12 months to September 2023).
“Return” is the profit over the past 12 months. This means that for every CA$1 a shareholder invests, the company will generate a profit of CA$0.30 for him.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE is a measure of a company's profitability. We are then able to evaluate a company's future ability to generate profits based on how much of its profits it chooses to reinvest or “retain”. Assuming everything else remains constant, the higher the ROE and profit retention, the higher the company's growth rate compared to companies that don't necessarily have these characteristics.
A side-by-side comparison of Steppe Gold's earnings growth and 30% ROE.
First of all, we like Steppe Gold's strong ROE. Moreover, his ROE for the company is high compared to the industry average of his 9.4%, which is quite noteworthy. So Steppe Gold's impressive 31% increase in net profit over the past five years isn't all that surprising.
As a next step, we compared Steppe Gold's net income growth with the industry and found that the company has a similar growth rate when compared to the industry average growth rate of 28% over the same period.
The foundations that give a company value have a lot to do with its revenue growth. The next thing investors need to determine is whether the expected earnings growth is already built into the stock price, or the lack thereof. Doing so will help you determine whether a stock's future is promising or ominous. If you're curious about Steppe Gold's valuation, check out this gauge of its price-to-earnings ratio compared to its industry.
Is Steppe Gold using its profits efficiently?
Given that Steppe Gold does not pay dividends to shareholders, we can assume that the company reinvests all of its profits into growing its business.
conclusion
Overall, I'm pretty happy with Steppe Gold's performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive revenue growth. Having said that, a look at current analyst forecasts shows that the company's earnings are expected to gain momentum. To know more about the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
