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Frontier Transport Holdings Limited's (JSE:FTH) Stock Has Fared Decently: Is the Market Following Strong Financials?

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

Frontier Transport Holdings' (JSE:FTH) stock up by 8.2% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Specifically, we decided to study Frontier Transport Holdings' ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Frontier Transport Holdings

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Frontier Transport Holdings is:

29% = R394m ÷ R1.4b (Based on the trailing twelve months to March 2024).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each ZAR1 of shareholders' capital it has, the company made ZAR0.29 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Frontier Transport Holdings' Earnings Growth And 29% ROE

At first glance, Frontier Transport Holdings seems to have a decent ROE. Further, the company's ROE compares quite favorably to the industry average of 17%. Probably as a result of this, Frontier Transport Holdings was able to see a decent growth of 7.8% over the last five years.

Next, on comparing Frontier Transport Holdings' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 7.3% over the last few years.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Frontier Transport Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Frontier Transport Holdings Using Its Retained Earnings Effectively?

Frontier Transport Holdings has a significant three-year median payout ratio of 58%, meaning that it is left with only 42% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.

Additionally, Frontier Transport Holdings has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders.

Summary

In total, we are pretty happy with Frontier Transport Holdings' performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Frontier Transport Holdings' past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.

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