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Will Landmark Infrastructure Partners LP (NASDAQ:LMRK) Continue To Underperform Its Industry?

Ben Rossbaum

Landmark Infrastructure Partners LP (NASDAQ:LMRK) delivered a less impressive 8.59% ROE over the past year, compared to the 9.10% return generated by its industry. Though LMRK’s recent performance is underwhelming, it is useful to understand what ROE is made up of and how it should be interpreted. Knowing these components can change your views on LMRK’s below-average returns. Today I will look at how components such as financial leverage can influence ROE which may impact the sustainability of LMRK’s returns. See our latest analysis for Landmark Infrastructure Partners

What you must know about ROE

Return on Equity (ROE) is a measure of Landmark Infrastructure Partners’s profit relative to its shareholders’ equity. For example, if the company invests $1 in the form of equity, it will generate $0.09 in earnings from this. Generally speaking, a higher ROE is preferred; however, there are other factors we must also consider before making any conclusions.

Return on Equity = Net Profit ÷ Shareholders Equity

ROE is assessed against cost of equity, which is measured using the Capital Asset Pricing Model (CAPM) – but let’s not dive into the details of that today. For now, let’s just look at the cost of equity number for Landmark Infrastructure Partners, which is 11.32%. This means Landmark Infrastructure Partners’s returns actually do not cover its own cost of equity, with a discrepancy of -2.73%. This isn’t sustainable as it implies, very simply, that the company pays more for its capital than what it generates in return. ROE can be broken down into three different ratios: net profit margin, asset turnover, and financial leverage. This is called the Dupont Formula:

Dupont Formula

ROE = profit margin × asset turnover × financial leverage

ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity)

ROE = annual net profit ÷ shareholders’ equity

NasdaqGM:LMRK Last Perf Feb 13th 18

The first component is profit margin, which measures how much of sales is retained after the company pays for all its expenses. The other component, asset turnover, illustrates how much revenue Landmark Infrastructure Partners can make from its asset base. Finally, financial leverage will be our main focus today. It shows how much of assets are funded by equity and can show how sustainable the company’s capital structure is. Since ROE can be inflated by excessive debt, we need to examine Landmark Infrastructure Partners’s debt-to-equity level. At 181.96%, Landmark Infrastructure Partners’s debt-to-equity ratio appears relatively high and indicates the below-average ROE is already being generated by significant leverage levels.

NasdaqGM:LMRK Historical Debt Feb 13th 18

Next Steps:

While ROE is a relatively simple calculation, it can be broken down into different ratios, each telling a different story about the strengths and weaknesses of a company. Landmark Infrastructure Partners exhibits a weak ROE against its peers, as well as insufficient levels to cover its own cost of equity this year. Although, its appropriate level of leverage means investors can be more confident in the sustainability of Landmark Infrastructure Partners’s return with a possible increase should the company decide to increase its debt levels. ROE is a helpful signal, but it is definitely not sufficient on its own to make an investment decision.

For Landmark Infrastructure Partners, there are three pertinent factors you should further research:


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.