U.S. markets open in 5 hours 25 minutes
  • S&P Futures

    3,944.75
    +28.50 (+0.73%)
     
  • Dow Futures

    31,687.00
    +200.00 (+0.64%)
     
  • Nasdaq Futures

    12,238.50
    +98.00 (+0.81%)
     
  • Russell 2000 Futures

    1,775.50
    +13.80 (+0.78%)
     
  • Crude Oil

    107.75
    +0.13 (+0.12%)
     
  • Gold

    1,837.60
    +7.30 (+0.40%)
     
  • Silver

    21.45
    +0.33 (+1.54%)
     
  • EUR/USD

    1.0591
    +0.0032 (+0.31%)
     
  • 10-Yr Bond

    3.1250
    0.0000 (0.00%)
     
  • Vix

    28.22
    -0.83 (-2.86%)
     
  • GBP/USD

    1.2320
    +0.0050 (+0.41%)
     
  • USD/JPY

    135.0450
    -0.1250 (-0.09%)
     
  • BTC-USD

    21,374.40
    -31.76 (-0.15%)
     
  • CMC Crypto 200

    465.70
    +11.80 (+2.60%)
     
  • FTSE 100

    7,272.09
    +63.28 (+0.88%)
     
  • Nikkei 225

    26,871.27
    +379.30 (+1.43%)
     

Declining Stock and Solid Fundamentals: Is The Market Wrong About Co-Diagnostics, Inc. (NASDAQ:CODX)?

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

With its stock down 38% over the past three months, it is easy to disregard Co-Diagnostics (NASDAQ:CODX). 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 Co-Diagnostics' ROE today.

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.

Check out our latest analysis for Co-Diagnostics

How To Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Co-Diagnostics is:

42% = US$42m ÷ US$100m (Based on the trailing twelve months to September 2021).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.42 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

Co-Diagnostics' Earnings Growth And 42% ROE

First thing first, we like that Co-Diagnostics has an impressive ROE. Secondly, even when compared to the industry average of 9.5% the company's ROE is quite impressive. Under the circumstances, Co-Diagnostics' considerable five year net income growth of 70% was to be expected.

We then compared Co-Diagnostics' net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 14% in the same period.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. Is Co-Diagnostics fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Co-Diagnostics Making Efficient Use Of Its Profits?

Co-Diagnostics doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Conclusion

In total, we are pretty happy with Co-Diagnostics' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.