Yahoo Finance Declining Stock and Solid Fundamentals: Is The Market Wrong About Acushnet Holdings Corp. (NYSE:GOLF)?
With its stock down 6.7% over the past three months, it is easy to disregard Acushnet Holdings (NYSE:GOLF). 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. Specifically, we decided to study Acushnet Holdings' ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.
View our latest analysis for Acushnet Holdings
How Is ROE Calculated?
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 Acushnet Holdings is:
20% = US$190m ÷ US$929m (Based on the trailing twelve months to March 2024).
The 'return' refers to a company's earnings over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.20 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.
Acushnet Holdings' Earnings Growth And 20% ROE
To begin with, Acushnet Holdings seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 15%. This probably laid the ground for Acushnet Holdings' moderate 18% net income growth seen over the past five years.
As a next step, we compared Acushnet Holdings' net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 15% in the same period.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for GOLF? You can find out in our latest intrinsic value infographic research report.
Is Acushnet Holdings Making Efficient Use Of Its Profits?
With a three-year median payout ratio of 26% (implying that the company retains 74% of its profits), it seems that Acushnet Holdings is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.
Besides, Acushnet Holdings has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.
Summary
On the whole, we feel that Acushnet Holdings' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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.
