Blackwall Property Trust's (ASX:BWR) Stock Has Shown A Decent Performance: Have Financials A Role To Play?
Blackwall Property Trust's (ASX:BWR) stock is up by 4.3% over the past month. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. In this article, we decided to focus on Blackwall Property Trust'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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Blackwall Property Trust
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 Blackwall Property Trust is:
9.3% = AU$24m ÷ AU$257m (Based on the trailing twelve months to June 2020).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every A$1 worth of equity, the company was able to earn A$0.09 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
A Side By Side comparison of Blackwall Property Trust's Earnings Growth And 9.3% ROE
At first glance, Blackwall Property Trust's ROE doesn't look very promising. However, the fact that the company's ROE is higher than the average industry ROE of 6.6%, is definitely interesting. This probably goes some way in explaining Blackwall Property Trust's moderate 8.4% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. E.g the company has a low payout ratio or could belong to a high growth industry.
We then performed a comparison between Blackwall Property Trust's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 8.5% in the same period.
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 BWR worth today? The intrinsic value infographic in our free research report helps visualize whether BWR is currently mispriced by the market.
Is Blackwall Property Trust Efficiently Re-investing Its Profits?
The really high three-year median payout ratio of 137% for Blackwall Property Trust suggests that the company is paying its shareholders more than what it is earning. In spite of this, the company was able to grow its earnings respectably, as we saw above. Although, the high payout ratio is certainly something we would keep an eye on if the company is not able to keep up its growth, or if business deteriorates. You can see the 2 risks we have identified for Blackwall Property Trust by visiting our risks dashboard for free on our platform here.
Additionally, Blackwall Property Trust has paid dividends over a period of seven years which means that the company is pretty serious about sharing its profits with shareholders.
Conclusion
In total, it does look like Blackwall Property Trust has some positive aspects to its business. Especially the growth in earnings which was backed by a moderate ROE. Still, the ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. As highlighted earlier, the current reinvestment rate appears to be negligible. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of Blackwall Property Trust's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
This article by Simply Wall St is general in nature. 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.
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