U.S. markets close in 1 hour 16 minutes
  • S&P 500

    4,202.17
    +79.70 (+1.93%)
     
  • Dow 30

    33,247.89
    +473.48 (+1.44%)
     
  • Nasdaq

    12,828.54
    +334.61 (+2.68%)
     
  • Russell 2000

    1,965.06
    +52.17 (+2.73%)
     
  • Crude Oil

    91.92
    +1.42 (+1.57%)
     
  • Gold

    1,795.00
    +1.00 (+0.06%)
     
  • Silver

    20.59
    +0.11 (+0.55%)
     
  • EUR/USD

    1.0315
    +0.0097 (+0.95%)
     
  • 10-Yr Bond

    2.7990
    +0.0020 (+0.07%)
     
  • GBP/USD

    1.2239
    +0.0162 (+1.34%)
     
  • USD/JPY

    132.9170
    -2.1990 (-1.63%)
     
  • BTC-USD

    23,746.37
    +686.04 (+2.97%)
     
  • CMC Crypto 200

    559.81
    +28.59 (+5.38%)
     
  • FTSE 100

    7,507.11
    +18.96 (+0.25%)
     
  • Nikkei 225

    27,819.33
    -180.63 (-0.65%)
     

Biocept, Inc. (NASDAQ:BIOC) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

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

Biocept (NASDAQ:BIOC) has had a rough three months with its share price down 28%. However, the company's fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. In this article, we decided to focus on Biocept's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Biocept

How Do You Calculate Return On Equity?

The formula for ROE is:

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

So, based on the above formula, the ROE for Biocept is:

5.3% = US$2.0m ÷ US$39m (Based on the trailing twelve months to September 2021).

The 'return' refers to a company's earnings over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.05.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Biocept's Earnings Growth And 5.3% ROE

At first glance, Biocept's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 14%. Biocept was still able to see a decent net income growth of 9.6% over the past five years. So, the growth in the company's earnings could probably have been caused by other variables. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Biocept's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 24% in the same period, which is a bit concerning.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. One 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 prospects. So, you may want to check if Biocept is trading on a high P/E or a low P/E, relative to its industry.

Is Biocept Using Its Retained Earnings Effectively?

Given that Biocept doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

In total, it does look like Biocept has some positive aspects to its business. Specifically, its fairly high earnings growth number, which no doubt was backed by the company's high earnings retention. Still, the low ROE means that all that reinvestment is not reaping a lot of benefit to the investors. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.

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

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.