With its stock down 10% over the past month, it’s easy to overlook Winnebago Industries (NYSE: WGO). However, a closer look at his strong finances might get you to think again. Since fundamentals usually determine long-term market outcomes, the business is worth considering. In this article, we have decided to focus on the ROE of Winnebago Industries.
Return on equity or ROE is an important factor for a shareholder to consider, as it tells them how efficiently their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest review for Winnebago Industries
How do you calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) Ã· Equity
Thus, based on the above formula, the ROE of Winnebago Industries is:
27% = US $ 282 million Ã· US $ 1.1 billion (based on the last twelve months to August 2021).
The “return” is the annual profit. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.27.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. We now need to assess how much profit the business is reinvesting or “holding back” for future growth, which then gives us an idea of ââthe growth potential of the business. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
Winnebago Industries profit growth and 27% ROE
First of all, we love that Winnebago Industries has an impressive ROE. In addition, the company’s ROE is 20% higher than the industry average, which is quite remarkable. As a result, the exceptional 26% net profit growth of Winnebago Industries observed over the past five years is no surprise.
We then compared the net income growth of Winnebago Industries with the industry and we are happy to see that the growth number of the company is higher than that of the industry which has a growth rate of 3.3. % during the same period.
The basis for attaching value to a business is, to a large extent, related to the growth of its profits. What investors next need to determine is whether the expected earnings growth, or lack thereof, is already built into the share price. This will help them determine whether the future of the stock looks bright or threatening. Is Winnebago Industries just valued compared to other companies? These 3 evaluation measures could help you decide.
Is Winnebago Industries effectively reinvesting its profits?
Winnebago Industries’ three-year median payout ratio to shareholders is 12%, which is quite low. This implies that the company keeps 88% of its profits. So it appears that management is reinvesting the profits massively to grow their business, which is reflected in the profit growth figure.
In addition, Winnebago Industries paid dividends over a period of seven years. This shows that the company is committed to sharing the profits with its shareholders. Estimates from existing analysts suggest that the company’s future payout ratio is expected to drop to 7.4% over the next three years. Either way, the ROE is not expected to change much for the company despite the expected lower payout ratio.
Overall, we think the performance of Winnebago Industries has been quite good. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. That said, the company’s earnings growth is expected to slow, as current analyst estimates predict. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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