Dundee Precious Metals (TSE:DPM) stock has increased by a significant 23% over the past 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. Specifically, in this article we decided to examine Dundee Precious Metals' ROE.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. More simply, it measures a company's profitability in relation to shareholder equity.
Check out our latest analysis for Dundee Precious Metals.
How is ROE calculated?
of ROE calculation formula teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, the ROE for Dundee Precious Metals is:
16% = USD 182 million ÷ USD 1.1 billion (based on trailing twelve months to December 2023).
“Return” is the profit over the past 12 months. This means that for every CA$1 a shareholder invests, the company generates CA$0.16 in profit for him.
What is the relationship between ROE and profit growth rate?
So far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
Dundee Precious Metals' earnings growth and ROE 16%
Firstly, Dundee Precious Metals' ROE appears to be within an acceptable range. When compared to the industry average of his ROE of 8.4%, his ROE for the company looks quite remarkable. This probably laid the foundation for the impressive 28% growth in Dundee Precious Metals' net income over the past five years. We think there may be other aspects that are positively impacting the company's earnings growth. For example, a company with a low dividend payout ratio or a company with efficient management.
We then compared Dundee Precious Metals' net income growth rate with the industry and found that the company's reported growth rate is similar to the industry average growth rate of 28% over the past few years.
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). Doing so will help you determine whether a stock's future is promising or ominous. Is Dundee Precious Metals valued significantly compared to other companies? These 3 valuation metrics can help you decide.
Does Dundee Precious Metals reinvest its profits effectively?
Dundee Precious Metals has a very low three-year median payout ratio of 16%, meaning that 84% remains to be reinvested into the business. Therefore, it appears that management is reinvesting profits heavily to grow the business, which is reflected in the earnings growth numbers.
Furthermore, Dundee Precious Metals is determined to continue sharing its profits with shareholders, as can be gleaned from its long history of paying dividends over four years. Looking at the current analyst consensus data, we see that the company's future dividend payout ratio is expected to rise to 22% over the next three years. Therefore, the increase in the expected dividend payout ratio explains the decrease in the company's expected ROE (to 8.0%) over the same period.
conclusion
Overall, we feel Dundee Precious Metals is doing very well. 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, we looked at current analyst forecasts and found that while the company has grown earnings in the past, we are concerned that analysts expect earnings to shrink in the future. Learn more about the company's future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about 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.
