The latest stock performance of Trulieve Cannabis Corp. (CSE:TRUL) reflect its financial health?

By William S. Archambault Last updated Feb 11, 2022

Trulieve Cannabis (CSE:TRUL) stock is up 27% over the past week. Given that the market rewards strong long-term financials, we wonder if this is the case in this case. In this article, we decided to focus on the ROE of Trulieve Cannabis.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In simpler terms, it measures a company’s profitability relative to equity.

See our latest review for Trulieve Cannabis

How is ROE calculated?

the ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Trulieve Cannabis is:

11% = $93 million ÷ $823 million (based on trailing 12 months to September 2021).

The “yield” is the amount earned after tax over the last twelve months. This therefore means that for every C$1 of investment by its shareholder, the company generates a profit of C$0.11.

What does ROE have to do with earnings growth?

So far, we have learned that ROE measures how efficiently a company generates its profits. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

A Side-by-Side Comparison of Trulieve Cannabis Earnings Growth and 11% ROE

For starters, the ROE of Trulieve Cannabis seems acceptable. Additionally, the company’s ROE is similar to the industry average of 12%. This likely partly explains Trulieve Cannabis’ significant 36% net income growth over the past five years, among other factors. We believe that there could also be other aspects that positively influence the company’s earnings growth. For example, the business has a low payout ratio or is efficiently managed.

As a next step, we compared Trulieve Cannabis’ net income growth with the industry, and fortunately, we found that the growth the company saw was above the average industry growth of 22%.

CNSX: TRUL Prior Earnings Growth February 11, 2022

Earnings growth is an important metric to consider when evaluating a stock. 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. If you’re wondering about Trulieve Cannabis’ valuation, check out this indicator of its price-earnings ratio, relative to its industry.

Does Trulieve Cannabis effectively reinvest its profits?

Trulieve Cannabis currently pays no dividends, which basically means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.

Summary

Overall, we think Trulieve Cannabis performed quite well. Specifically, we like that the company reinvests a large portion of its earnings at a high rate of return. This of course caused the company to see substantial growth in profits. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. 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.