U.S. markets close in 1 hour 38 minutes
  • S&P 500

    3,681.90
    +96.28 (+2.69%)
     
  • Dow 30

    29,514.40
    +788.89 (+2.75%)
     
  • Nasdaq

    10,826.68
    +251.06 (+2.37%)
     
  • Russell 2000

    1,705.22
    +40.50 (+2.43%)
     
  • Crude Oil

    83.69
    +4.20 (+5.28%)
     
  • Gold

    1,705.00
    +33.00 (+1.97%)
     
  • Silver

    20.68
    +1.64 (+8.62%)
     
  • EUR/USD

    0.9807
    +0.0006 (+0.06%)
     
  • 10-Yr Bond

    3.6530
    -0.1510 (-3.97%)
     
  • GBP/USD

    1.1293
    +0.0127 (+1.13%)
     
  • USD/JPY

    144.6790
    -0.0500 (-0.03%)
     
  • BTC-USD

    19,601.11
    +427.89 (+2.23%)
     
  • CMC Crypto 200

    445.52
    +10.16 (+2.33%)
     
  • FTSE 100

    6,908.76
    +14.95 (+0.22%)
     
  • Nikkei 225

    26,215.79
    +278.58 (+1.07%)
     

Forrester Research, Inc.'s (NASDAQ:FORR) Has Performed Well But Fundamentals Look Varied: Is There A Clear Direction For The Stock?

·3 min read

Forrester Research's (NASDAQ:FORR) stock is up by 6.3% over the past three months. However, we decided to study the company's mixed-bag of fundamentals to assess what this could mean for future share prices, as stock prices tend to be aligned with a company's long-term financial performance. Particularly, we will be paying attention to Forrester Research's 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

View our latest analysis for Forrester Research

How To 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 Forrester Research is:

9.6% = US$19m ÷ US$201m (Based on the trailing twelve months to September 2021).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.10 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Forrester Research's Earnings Growth And 9.6% ROE

When you first look at it, Forrester Research's ROE doesn't look that attractive. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 15% either. Therefore, it might not be wrong to say that the five year net income decline of 13% seen by Forrester Research was probably the result of it having a lower ROE. However, there could also be other factors causing the earnings to decline. For instance, the company has a very high payout ratio, or is faced with competitive pressures.

So, as a next step, we compared Forrester Research's performance against the industry and were disappointed to discover that while the company has been shrinking its earnings, the industry has been growing its earnings at a rate of 15% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is FORR worth today? The intrinsic value infographic in our free research report helps visualize whether FORR is currently mispriced by the market.

Is Forrester Research Efficiently Re-investing Its Profits?

While the company did payout a portion of its dividend in the past, it currently doesn't pay a dividend. This implies that potentially all of its profits are being reinvested in the business.

Conclusion

Overall, we have mixed feelings about Forrester Research. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. 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.