U.S. Markets open in 4 hrs 46 mins
  • S&P Futures

    4,130.50
    +7.00 (+0.17%)
     
  • Dow Futures

    33,939.00
    +5.00 (+0.01%)
     
  • Nasdaq Futures

    12,564.75
    +49.25 (+0.39%)
     
  • Russell 2000 Futures

    1,966.90
    +1.80 (+0.09%)
     
  • Crude Oil

    75.41
    +1.30 (+1.75%)
     
  • Gold

    1,887.50
    +8.00 (+0.43%)
     
  • Silver

    22.36
    +0.12 (+0.55%)
     
  • EUR/USD

    1.0722
    -0.0009 (-0.0858%)
     
  • 10-Yr Bond

    3.6340
    0.0000 (0.00%)
     
  • Vix

    19.29
    +0.96 (+5.24%)
     
  • GBP/USD

    1.2023
    -0.0001 (-0.0048%)
     
  • USD/JPY

    131.7850
    -0.8220 (-0.6199%)
     
  • BTC-USD

    22,966.58
    +84.26 (+0.37%)
     
  • CMC Crypto 200

    527.62
    +2.48 (+0.47%)
     
  • FTSE 100

    7,871.24
    +34.53 (+0.44%)
     
  • Nikkei 225

    27,685.47
    -8.18 (-0.03%)
     

Do Its Financials Have Any Role To Play In Driving Vishay Precision Group, Inc.'s (NYSE:VPG) Stock Up Recently?

Vishay Precision Group (NYSE:VPG) has had a great run on the share market with its stock up by a significant 25% over the last month. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Vishay Precision Group's ROE in this article.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

View our latest analysis for Vishay Precision Group

How Do You 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 Vishay Precision Group is:

12% = US$34m ÷ US$287m (Based on the trailing twelve months to October 2022).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.12 in profit.

What Has ROE Got To Do With 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.

Vishay Precision Group's Earnings Growth And 12% ROE

At first glance, Vishay Precision Group seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 14%. Vishay Precision Group's decent returns aren't reflected in Vishay Precision Group'smediocre five year net income growth average of 3.3%. A few likely reasons that could be keeping earnings growth low are - the company has a high payout ratio or the business has allocated capital poorly, for instance.

Next, on comparing with the industry net income growth, we found that Vishay Precision Group's reported growth was lower than the industry growth of 18% in the same period, which is not something we like to see.

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). This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Vishay Precision Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Vishay Precision Group Using Its Retained Earnings Effectively?

Vishay Precision Group doesn't pay any dividend, which means that it is retaining all of its earnings. This doesn't explain the low earnings growth number that we discussed above. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline.

Summary

In total, it does look like Vishay Precision Group has some positive aspects to its business. However, given the high ROE and high profit retention, we would expect the company to be delivering strong earnings growth, but that isn't the case here. This suggests that there might be some external threat to the business, that's hampering its growth. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here