Sterling Infrastructure (NASDAQ:STRL) has been doing well on the stock market, with its shares up a significant 27% over the past three months. 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 this article, we decided to focus on Sterling Infrastructure's ROE.
Return on equity or ROE is a key measure used to evaluate how efficiently a company's management is utilizing the company's capital. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Starling Infrastructure.
How is ROE calculated?
of Formula for calculating return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, the ROE for Starling Infrastructure is:
23% = USD 143 million ÷ USD 624 million (based on trailing twelve months to December 2023).
“Return” is the annual profit. This means that for every $1 a shareholder invests, the company generates $0.23 in profit for him.
Why is ROE important for profit growth?
It has already been established that ROE serves as an indicator of how efficiently a company will generate future profits. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.
Starling Infrastructure's Revenue Growth and ROE of 23%
First of all, we like that Sterling Infrastructure has a good ROE. Secondly, we can't ignore the comparison to the average ROE of 12% reported by the industry. Under these circumstances, a significant 32% net profit increase over his five years for Sterling Infrastructure was expected.
Next, if we compare it to the industry's net income growth, we find that Starling Infrastructure's growth is quite high when compared to the industry average growth rate of 17% over the same period, which is great.
Earnings growth is an important metric to consider when evaluating a stock. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). This can help you decide whether to position the stock for a bright or bleak future. Is the market factoring in Giken's future prospects? Find out in our latest Intrinsic Value infographic research report.
Is Starling Infrastructure effectively reinvesting its profits?
Sterling Infrastructure does not pay dividends to shareholders. This means that the company reinvests all of its profits back into the business. This is likely what is driving the high earnings growth rate discussed above.
summary
Overall, I'm pretty happy with the performance of Sterling Infrastructure. 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. That said, the company's revenue growth is expected to slow, according to the latest industry analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page 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.
