U.S. markets close in 2 hours 46 minutes
  • S&P 500

    3,806.17
    -15.38 (-0.40%)
     
  • Dow 30

    30,946.48
    -0.51 (-0.00%)
     
  • Nasdaq

    11,126.01
    -55.53 (-0.50%)
     
  • Russell 2000

    1,710.00
    -28.84 (-1.66%)
     
  • Crude Oil

    111.64
    -0.12 (-0.11%)
     
  • Gold

    1,818.00
    -3.20 (-0.18%)
     
  • Silver

    20.75
    -0.12 (-0.58%)
     
  • EUR/USD

    1.0455
    -0.0070 (-0.67%)
     
  • 10-Yr Bond

    3.1100
    -0.0960 (-2.99%)
     
  • GBP/USD

    1.2133
    -0.0051 (-0.42%)
     
  • USD/JPY

    136.5400
    +0.4120 (+0.30%)
     
  • BTC-USD

    20,027.11
    -626.06 (-3.03%)
     
  • CMC Crypto 200

    431.05
    -8.62 (-1.96%)
     
  • FTSE 100

    7,312.32
    -11.09 (-0.15%)
     
  • Nikkei 225

    26,804.60
    -244.87 (-0.91%)
     

Is The Ensign Group, Inc.'s (NASDAQ:ENSG) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

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

Ensign Group's (NASDAQ:ENSG) stock is up by a considerable 10% over the past week. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Ensign Group's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

See our latest analysis for Ensign Group

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 Ensign Group is:

19% = US$198m ÷ US$1.0b (Based on the trailing twelve months to December 2021).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.19 in profit.

Why Is ROE Important For 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.

Ensign Group's Earnings Growth And 19% ROE

To begin with, Ensign Group seems to have a respectable ROE. Even when compared to the industry average of 17% the company's ROE looks quite decent. This probably goes some way in explaining Ensign Group's significant 35% net income growth over the past five years amongst other factors. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.

We then compared Ensign Group's 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 15% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. 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. Has the market priced in the future outlook for ENSG? You can find out in our latest intrinsic value infographic research report.

Is Ensign Group Efficiently Re-investing Its Profits?

Ensign Group's ' three-year median payout ratio is on the lower side at 8.1% implying that it is retaining a higher percentage (92%) of its profits. So it looks like Ensign Group is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Ensign Group has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to drop to 4.9% over the next three years.

Conclusion

On the whole, we feel that Ensign Group's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.