Wilhelmina International, Inc. (NASDAQ: WHLM) Stocks have moved lower but fundamentals look correct: will the market correct the share price in the future?
It’s hard to get excited after looking at the recent performance of Wilhelmina International (NASDAQ: WHLM), when its stock has fallen 23% in the past three months. But if you pay close attention to it, you might find that its key financial metrics look pretty decent, which could mean the stock could potentially rise in the long term given how markets typically reward long-term fundamentals. more resistant term. Specifically, we have decided to study the ROE of Wilhelmina International in this article.
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. In other words, it is a profitability ratio that measures the rate of return on capital contributed by the shareholders of the company.
See our latest analysis for Wilhelmina International
How do you calculate return on equity?
ROE can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
Thus, based on the above formula, the ROE of Wilhelmina International is:
23% = US $ 4.9 million ÷ US $ 21 million (based on the last twelve months to September 2021).
The “return” is the amount earned after tax over the past twelve months. Another way to look at this is that for every dollar in equity, the company was able to make $ 0.23 in profit.
Why is ROE important for profit growth?
So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
A side-by-side comparison of Wilhelmina International’s 23% profit growth and ROE
First of all, we love that Wilhelmina International has an impressive ROE. Additionally, the company’s ROE is 11% higher than the industry average, which is quite remarkable. Needless to say, we are quite surprised to see that Wilhelmina International’s bottom line has declined by 25% over the past five years. So there could be other aspects that could explain this. For example, the company may have a high payout ratio or the company may have misallocated capital, for example.
That being said, we compared the performance of Wilhelmina International with that of the industry and we were concerned that although the company reduced its profits, the industry increased its profits at a rate of 8, 4% over the same period.
Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This then helps him determine whether the stock is set for a bright or dark future. Is Wilhelmina International just valued compared to other companies? These 3 evaluation measures could help you decide.
Is Wilhelmina International effectively reinvesting its profits?
Wilhelmina International does not pay any dividends, which means the company keeps all of its profits, which makes us wonder why it keeps its profits if it cannot use them to grow its business. It seems that there could be other reasons for the lack in this regard. For example, the business could be in decline.
Overall, we think Wilhelmina International certainly has some positive factors to consider. Still, the weak earnings growth is a bit of a concern, especially since the company has a high rate of return and is reinvesting a huge chunk of its earnings. At first glance, there might be other factors, which do not necessarily control the business, that are preventing growth. While we don’t completely reject the business, what we would do is try to determine how risky the business is in order to make a more informed decision about the business. Our risk dashboard would contain the 3 risks that we have identified for Wilhelmina International.
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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.