Dismal stock performance of Camden Property Trust (NYSE:CPT) reflects weak fundamentals
It’s hard to get excited after watching the recent performance of Camden Property Trust (NYSE:CPT), as its stock is down 2.1% over the past week. We decided to study company financials to determine if the downtrend will continue, as a company’s long-term performance usually dictates market outcomes. In this article, we have decided to focus on the ROE of Camden Property Trust.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the company’s shareholders.
See our latest analysis for Camden Property Trust
How do you calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Camden Property Trust is:
7.3% = $312 million ÷ $4.3 billion (based on trailing 12 months to December 2021).
The “return” is the annual profit. This means that for every dollar of shareholders’ equity, the company generated $0.07 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. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to gauge a company’s earnings 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.
Camden Property Trust earnings growth and ROE of 7.3%
When you first look at it, Camden Property Trust’s ROE doesn’t look all that appealing. Yet further study shows that the company’s ROE is similar to the industry average of 6.9%. That said, Camden Property Trust’s five-year net income decline rate was 17%. Remember that the company’s ROE is a bit low to start with. So that’s what could lead to lower earnings growth.
However, when we compared Camden Property Trust’s growth with the industry, we found that although company profits were down, the industry saw 10% profit growth over the same period. period. It’s quite worrying.
Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. By doing so, they will get an idea if the stock is headed for clear blue waters or if swampy waters are waiting. Has the market priced in CPT’s future prospects? You can find out in our latest infographic research report on intrinsic value.
Does Camden Property Trust effectively reinvest its profits?
Camden Property Trust appears to pay out most of its income as dividends judging by its three-year median payout ratio of 65% (meaning the company only keeps 35% of profits). However, this is typical for REITs as they are often required by law to distribute most of their profits. As a result, this probably explains why its profits have declined.
Furthermore, Camden Property Trust has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of business growth. ‘business. Our latest analyst data shows that the company’s future payout ratio over the next three years is expected to be approximately 57%. Regardless, Camden Property Trust’s ROE is expected to decline to 5.7% despite no expected change in its payout ratio.
Overall, Camden Property Trust’s performance is quite disappointing. Due to its low ROE and lack of reinvestment in the business, the company experienced a disappointing earnings growth rate. That said, the latest forecasts from industry analysts show that analysts are expecting a slight improvement in the company’s future earnings growth. This could offer some relief to the company’s existing shareholders. 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.