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Is G-III Apparel Group, Ltd.'s (NASDAQ:GIII) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

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·3 min read
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Most readers would already be aware that G-III Apparel Group's (NASDAQ:GIII) stock increased significantly by 108% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. Particularly, we will be paying attention to G-III Apparel Group's ROE today.

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.

See our latest analysis for G-III Apparel Group

How Is ROE Calculated?

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 G-III Apparel Group is:

5.4% = US$66m ÷ US$1.2b (Based on the trailing twelve months to July 2020).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.05 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. 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.

G-III Apparel Group's Earnings Growth And 5.4% ROE

When you first look at it, G-III Apparel Group'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 16% either. Thus, the low net income growth of 4.8% seen by G-III Apparel Group over the past five years could probably be the result of the low ROE.

As a next step, we compared G-III Apparel Group's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 2.0%.

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. Doing so will help them establish if the stock's future looks promising or ominous. Is G-III Apparel Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is G-III Apparel Group Efficiently Re-investing Its Profits?

Summary

In total, it does look like G-III Apparel Group has some positive aspects to its business. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.