Could the market be wrong about Jewett-Cameron Trading Company Ltd. (NASDAQ: JCTC.F) given its attractive financial outlook?
Jewett-Cameron Trading (NASDAQ: JCTC.F) had a tough month with its stock price down 16%. 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 particular, we will be paying close attention to Jewett-Cameron Trading’s ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest review for Jewett-Cameron Trading
How to calculate return on equity?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, Jewett-Cameron Trading’s ROE is:
20% = US $ 4.4 million ÷ US $ 22 million (based on the last twelve months up to May 2021).
The “return” is the annual profit. One way to conceptualize this is that for every $ 1 of shareholder capital it has, the company has made $ 0.20 in profit.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on how much of those profits the company reinvests or “withholds” and how efficiently it does so, we are then able to assess a company’s profit growth potential. Generally speaking, all other things being equal, companies with high return on equity and high profit retention have a higher growth rate than companies that do not share these attributes.
Jewett-Cameron Trading profit growth and 20% ROE
For starters, Jewett-Cameron Trading appears to have a respectable ROE. Additionally, the company’s ROE is similar to the industry average of 17%. This probably partly explains Jewett-Cameron Trading’s moderate 5.7% growth over the past five years, among other factors.
We then compared Jewett-Cameron Trading’s net income growth with the industry and found that the company’s growth figure is lower than the industry average growth rate of 9.1% over the course of the year. same period, which is a bit worrying.
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. A good indicator of expected earnings growth is the P / E ratio which determines the price the market is willing to pay for a stock based on its earnings outlook. So, you might want to check if Jewett-Cameron Trading is trading high P / E or low P / E, relative to its industry.
Is Jewett-Cameron Trading Using Profits Effectively?
Since Jewett-Cameron Trading 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, we are quite satisfied with the performance of Jewett-Cameron Trading. In particular, we like the fact that the company is reinvesting heavily in its business and at a high rate of return. As a result, its decent profit growth is not surprising. If the company continues to grow earnings like it has, it could have a positive impact on its stock price given the influence of earnings per share on long-term stock prices. Let’s not forget that trading risk is also one of the factors that affect the stock price. So this is also an important area that investors should pay attention to before making a decision on a business. To learn about the 4 risks we have identified for Jewett-Cameron Trading visit our free risk dashboard.
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 any of the stocks mentioned.
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