Are BrightView Holdings, Inc. (NYSE: BV) fundamentals good enough to justify buying given recent stock weakness?
BrightView Holdings (NYSE: BV) had a difficult month with its share price down 15%. But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean that the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. In this article, we have decided to focus on the ROE of BrightView Holdings.
Return on equity or ROE is a key metric used to assess the efficiency with which the management of a business is using business capital. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest review for BrightView Holdings
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 BrightView Holdings is:
3.4% = US $ 46 million Ã· US $ 1.3 billion (based on the last twelve months to September 2021).
The “return” is the annual profit. This means that for every dollar in shareholders’ equity, the company generated $ 0.03 in profit.
Why is ROE important for 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.
BrightView Holdings earnings growth and 3.4% ROE
As you can see, BrightView Holdings’ ROE appears to be quite low. Even compared to the industry average ROE of 11%, the company’s ROE is pretty dismal. However, we are pleasantly surprised to see that BrightView Holdings has increased its net income at a significant rate of 29% over the past five years. We think there might be other factors at play here. Such as – high profit retention or effective management in place.
Next, comparing with the industry’s net income growth, we found that BrightView Holdings’ growth is quite high compared to the industry’s average growth of 8.4% over the same period, which is great at see.
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 then helps them determine whether the stock is set for a bright or dark future. How fair is BrightView Holdings’ value to other companies? These 3 evaluation measures could help you decide.
Is BrightView Holdings Efficiently Using Its Retained Earnings?
Since BrightView Holdings does not pay any dividends to its shareholders, we infer that the company has reinvested all of its profits to grow its business.
All in all, it looks like BrightView Holdings has some positive aspects for its business. Despite its low rate of return, the fact that the company reinvested a very large portion of its profits back into its business has undoubtedly contributed to the strong profit growth. We also looked at the latest analysts’ forecast and found that the company’s profit growth is expected to be similar to its current growth rate. To learn more about the latest analyst forecast for the business, check out this visualization of the analyst forecast for the business.
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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 any stock 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 any of the stocks mentioned.