Advertisement
Singapore markets close in 4 hours 18 minutes
  • Straits Times Index

    3,313.81
    -9.39 (-0.28%)
     
  • Nikkei

    38,098.00
    -458.87 (-1.19%)
     
  • Hang Seng

    18,252.32
    -224.69 (-1.22%)
     
  • FTSE 100

    8,183.07
    -71.11 (-0.86%)
     
  • Bitcoin USD

    68,246.71
    -567.41 (-0.82%)
     
  • CMC Crypto 200

    1,462.85
    -21.84 (-1.47%)
     
  • S&P 500

    5,266.95
    -39.09 (-0.74%)
     
  • Dow

    38,441.54
    -411.32 (-1.06%)
     
  • Nasdaq

    16,920.58
    -99.30 (-0.58%)
     
  • Gold

    2,333.50
    -7.70 (-0.33%)
     
  • Crude Oil

    79.16
    -0.07 (-0.09%)
     
  • 10-Yr Bond

    4.6240
    +0.0820 (+1.81%)
     
  • FTSE Bursa Malaysia

    1,607.50
    +2.15 (+0.13%)
     
  • Jakarta Composite Index

    7,052.96
    -87.27 (-1.22%)
     
  • PSE Index

    6,366.33
    -45.08 (-0.70%)
     

Is The Market Rewarding ANSYS, Inc. (NASDAQ:ANSS) With A Negative Sentiment As A Result Of Its Mixed Fundamentals?

ANSYS (NASDAQ:ANSS) has had a rough three months with its share price down 1.8%. It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study ANSYS' ROE in this article.

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 ANSYS

How Is ROE Calculated?

ROE can be calculated by using the formula:

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

ADVERTISEMENT

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

9.3% = US$500m ÷ US$5.4b (Based on the trailing twelve months to December 2023).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.09 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. 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. 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.

ANSYS' Earnings Growth And 9.3% ROE

At first glance, ANSYS' ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 12%. Accordingly, ANSYS' low net income growth of 4.6% over the past five years can possibly be explained by the low ROE amongst other factors.

We then compared ANSYS' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 15% in the same 5-year period, which is a bit concerning.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. What is ANSS worth today? The intrinsic value infographic in our free research report helps visualize whether ANSS is currently mispriced by the market.

Is ANSYS Making Efficient Use Of Its Profits?

ANSYS doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This doesn't explain the low earnings growth number that we discussed above. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Conclusion

Overall, we have mixed feelings about ANSYS. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.