U.S. markets closed
  • S&P Futures

    4,447.25
    -27.50 (-0.61%)
     
  • Dow Futures

    34,491.00
    -125.00 (-0.36%)
     
  • Nasdaq Futures

    14,695.75
    -145.25 (-0.98%)
     
  • Russell 2000 Futures

    2,013.30
    -7.90 (-0.39%)
     
  • Crude Oil

    86.29
    -0.61 (-0.70%)
     
  • Gold

    1,837.50
    -5.10 (-0.28%)
     
  • Silver

    24.38
    -0.34 (-1.36%)
     
  • EUR/USD

    1.1319
    +0.0001 (+0.01%)
     
  • 10-Yr Bond

    1.8330
    +0.0060 (+0.33%)
     
  • Vix

    25.59
    +1.74 (+7.30%)
     
  • GBP/USD

    1.3595
    -0.0005 (-0.04%)
     
  • USD/JPY

    113.8480
    -0.2520 (-0.22%)
     
  • BTC-USD

    39,864.75
    -1,927.44 (-4.61%)
     
  • CMC Crypto 200

    936.98
    -58.28 (-5.86%)
     
  • FTSE 100

    7,585.01
    -4.65 (-0.06%)
     
  • Nikkei 225

    27,293.09
    -479.84 (-1.73%)
     

Agnico Eagle Mines Limited's (NYSE:AEM) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • AEM

With its stock down 12% over the past three months, it is easy to disregard Agnico Eagle Mines (NYSE:AEM). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Agnico Eagle Mines' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Agnico Eagle Mines

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Agnico Eagle Mines is:

11% = US$645m ÷ US$5.9b (Based on the trailing twelve months to September 2021).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.11 in profit.

What Is The Relationship Between ROE And Earnings 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 "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Agnico Eagle Mines' Earnings Growth And 11% ROE

To begin with, Agnico Eagle Mines seems to have a respectable ROE. Even so, when compared with the average industry ROE of 19%, we aren't very excited. However, we are pleased to see the impressive 31% net income growth reported by Agnico Eagle Mines over the past five years. Therefore, there could be other causes behind this growth. Such as - high earnings retention or an efficient management in place. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this certainly also provides some context to the high earnings growth seen by the company.

As a next step, we compared Agnico Eagle Mines' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 15%.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is AEM worth today? The intrinsic value infographic in our free research report helps visualize whether AEM is currently mispriced by the market.

Is Agnico Eagle Mines Efficiently Re-investing Its Profits?

The three-year median payout ratio for Agnico Eagle Mines is 34%, which is moderately low. The company is retaining the remaining 66%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Agnico Eagle Mines is reinvesting its earnings efficiently.

Besides, Agnico Eagle Mines has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 44% over the next three years. Still, forecasts suggest that Agnico Eagle Mines' future ROE will rise to 14% even though the the company's payout ratio is expected to rise. We presume that there could some other characteristics of the business that could be driving the anticipated growth in the company's ROE.

Summary

In total, we are pretty happy with Agnico Eagle Mines' performance. Particularly, we like that the company is reinvesting heavily into its business at a moderate rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.