BioDelivery Sciences International Inc (NASDAQ:BDSI) has had a strong run in the stock market, with its stock rising 23% over the past week. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health usually dictates market outcomes. In particular, we will pay attention to the ROE of BioDelivery Sciences International today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it has received from its shareholders. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
See our latest analysis for BioDelivery Sciences International
How to calculate return on equity?
the ROE formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for BioDelivery Sciences International is:
25% = $31 million ÷ $123 million (based on trailing 12 months to September 2021).
The “yield” is the profit of the last twelve months. Another way to think about this is that for every dollar of equity, the company was able to make $0.25 in profit.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
A side-by-side comparison of BioDelivery Sciences International’s 25% profit and ROE growth
First of all, we appreciate the fact that BioDelivery Sciences International has an impressive ROE. Additionally, the company’s ROE is above the industry average of 17%, which is quite remarkable. Under these circumstances, a considerable growth in the five-year net profit of 45% of BioDelivery Sciences International was to be expected.
Then, comparing with the industry net income growth, we found that the growth of BioDelivery Sciences International is quite high compared to the average industry growth of 15% over the same period, which is great to see.
Earnings growth is an important factor in stock valuation. It is important for an investor to know whether the market has priced in the expected growth (or decline) in the company’s earnings. This will help them determine if the future of the title looks bright or ominous. If you’re wondering about the valuation of BioDelivery Sciences International, check out this indicator of its price/earnings ratio, relative to its sector.
Is BioDelivery Sciences International using its profits effectively?
BioDelivery Sciences International currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
Overall, we believe that BioDelivery Sciences International’s performance has been quite good. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, a study of the latest analyst forecasts shows that the company should see a slowdown in future earnings growth. To learn more about the latest analyst forecasts for the company, check out this analyst forecast visualization for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.