Advertisement
Singapore markets close in 3 hours 28 minutes

  • Straits Times Index

    3,450.28
    +8.51 (+0.25%)
     

  • Nikkei

    38,607.05
    +81.10 (+0.21%)
     

  • Hang Seng

    17,348.83
    +345.92 (+2.03%)
     

  • FTSE 100

    8,274.41
    -17.94 (-0.22%)
     

  • Bitcoin USD

    65,756.73
    -696.68 (-1.05%)
     

  • CMC Crypto 200

    1,340.84
    -29.65 (-2.16%)
     

  • S&P 500

    5,436.44
    -27.10 (-0.50%)
     

  • Dow

    40,743.33
    +203.40 (+0.50%)
     

  • Nasdaq

    17,147.42
    -222.79 (-1.28%)
     

  • Gold

    2,464.60
    +12.70 (+0.52%)
     

  • Crude Oil

    76.05
    +1.32 (+1.77%)
     

  • 10-Yr Bond

    4.1430
    -0.0350 (-0.84%)
     

  • FTSE Bursa Malaysia

    1,618.69
    +6.75 (+0.42%)
     

  • Jakarta Composite Index

    7,254.45
    +12.59 (+0.17%)
     

  • PSE Index

    6,628.12
    +21.76 (+0.33%)
     

Could The Market Be Wrong About Qualys, Inc. (NASDAQ:QLYS) Given Its Attractive Financial Prospects?

editorial-team@simplywallst.com (Simply Wall St)
·3-min read

It is hard to get excited after looking at Qualys' (NASDAQ:QLYS) recent performance, when its stock has declined 16% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to Qualys' ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Qualys

How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Qualys is:

40% = US$162m ÷ US$404m (Based on the trailing twelve months to March 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.40 in profit.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Qualys' Earnings Growth And 40% ROE

First thing first, we like that Qualys has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. This likely paved the way for the modest 18% net income growth seen by Qualys over the past five years.

Next, on comparing with the industry net income growth, we found that Qualys' growth is quite high when compared to the industry average growth of 13% in the same period, which is great to see.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Qualys is trading on a high P/E or a low P/E, relative to its industry.

Is Qualys Making Efficient Use Of Its Profits?

Qualys doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Summary

On the whole, we feel that Qualys' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com