Dewhurst plc (LON: DWHT) fundamentals look pretty strong: Could the market be wrong about the stock?

Dewhurst (LON: DWHT) had a tough three months with a 42% price drop. The company’s fundamentals look pretty decent, however, and the long-term financial data is usually aligned with future market price movements. We’re going to be paying particular attention to the Dewhurst ROE today.

Return on Equity, or ROE, is an important metric for assessing how efficiently a company’s management is using the company’s capital. In other words, it shows the company’s success in turning shareholder investments into profits.

See our latest analysis for Dewhurst

How is the ROE calculated?

The ROE can be calculated using the formula:

Return on Equity = Net Income (from continuing operations) ÷ Equity

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

11% = UK £ 5.1m ÷ UK £ 47m (based on the last twelve months through March 2021).

The “return” is the income that the company has earned over the past year. Another way to imagine this is that for every £ 1 worth of equity, the company was able to make a profit of £ 0.11.

What does ROE have to do with earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to evaluate how much profit the company can reinvest or “keep” for future growth, which then gives us an idea of ​​the company’s growth potential. In general, all other things being equal, companies with high ROE and retained earnings will grow faster than companies that do not share these attributes.

Dewhurst’s earnings growth and 11% ROE

At first glance, Dewhurst seems to have a decent ROE. Even compared to the industry average of 12%, the company’s ROE looks pretty decent. Even so, Dewhurst’s five-year net income growth has been fairly flat over the past five years. Because of this, we believe that there might be other reasons not discussed so far in this article that might hinder the company’s growth. For example, the company pays out a large part of its profits as dividends or faces competitive pressures.

Next, when we compared the industry’s net income growth, we found that the industry increased its profits by 5.5% over the same period.

AIM: DWHT Past Earnings Growth October 20, 2021

Earnings growth is an important metric to consider when evaluating a stock. It is important for an investor to know if the market has factored in the company’s expected earnings growth (or decline). In this way, they have an idea of ​​whether the stock is leading into clear blue water or expecting swampy water. Is Dewhurst fairly valued compared to other companies? These 3 benchmarks can help you make a decision.

Is Dewhurst Using Its Profits Efficiently?

Despite a normal 3-year median payout rate of 31% (or a retention rate of 69%), Dewhurst has not seen large earnings growth. So there could be another explanation in this regard. For example, the company’s business may deteriorate.

Additionally, Dewhurst has been paying dividends over a period of at least a decade, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of business growth.

summary

Overall, it looks like Dewhurst has some positives in its business. The low earnings growth is somewhat worrying, however, especially since the company has a high return and is reinvesting much of its earnings. As it stands, there could be a few other factors that are not necessarily in control of the business and are preventing its growth. So far, we’ve only touched the surface of the company’s past performance by looking at the company’s fundamentals. So it can be worth checking out for free detailed graphic Dewhurst’s earnings to date, as well as revenue and cash flows, for a deeper insight into the company’s performance.

This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.

Do you have any feedback on this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.

About Nina Snider

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