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First Industrial Realty Trust, Inc. (NYSE:FR) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?

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First Industrial Realty Trust (NYSE:FR) has had a rough three months with its share price down 10%. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Specifically, we decided to study First Industrial Realty Trust's ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for First Industrial Realty Trust

How To 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 First Industrial Realty Trust is:

14% = US$331m ÷ US$2.4b (Based on the trailing twelve months to June 2022).

The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.14.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

A Side By Side comparison of First Industrial Realty Trust's Earnings Growth And 14% ROE

At first glance, First Industrial Realty Trust seems to have a decent ROE. Especially when compared to the industry average of 6.5% the company's ROE looks pretty impressive. Probably as a result of this, First Industrial Realty Trust was able to see a decent growth of 11% over the last five years.

As a next step, we compared First Industrial Realty Trust's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 11% 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. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is FR fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is First Industrial Realty Trust Using Its Retained Earnings Effectively?

First Industrial Realty Trust has a high three-year median payout ratio of 54%. This means that it has only 46% of its income left to reinvest into its business. However, it's not unusual to see a REIT with such a high payout ratio mainly due to statutory requirements. Despite this, the company's earnings grew moderately as we saw above.

Besides, First Industrial Realty Trust has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 53% of its profits over the next three years. Regardless, First Industrial Realty Trust's ROE is speculated to decline to 5.3% despite there being no anticipated change in its payout ratio.

Conclusion

Overall, we are quite pleased with First Industrial Realty Trust's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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.

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