U.S. markets open in 6 hours 35 minutes
  • S&P Futures

    3,428.50
    -23.25 (-0.67%)
     
  • Dow Futures

    27,996.00
    -193.00 (-0.68%)
     
  • Nasdaq Futures

    11,607.75
    -55.75 (-0.48%)
     
  • Russell 2000 Futures

    1,618.70
    -16.90 (-1.03%)
     
  • Crude Oil

    38.93
    -0.92 (-2.31%)
     
  • Gold

    1,899.70
    -5.50 (-0.29%)
     
  • Silver

    24.27
    -0.40 (-1.62%)
     
  • EUR/USD

    1.1839
    -0.0030 (-0.25%)
     
  • 10-Yr Bond

    0.8410
    0.0000 (0.00%)
     
  • Vix

    27.55
    -0.56 (-1.99%)
     
  • GBP/USD

    1.3023
    -0.0015 (-0.12%)
     
  • USD/JPY

    104.9200
    +0.2300 (+0.22%)
     
  • BTC-USD

    13,086.37
    +9.35 (+0.07%)
     
  • CMC Crypto 200

    262.93
    +1.47 (+0.56%)
     
  • FTSE 100

    5,860.28
    +74.63 (+1.29%)
     
  • Nikkei 225

    23,494.34
    -22.25 (-0.09%)
     

Is Landstar System, Inc.'s (NASDAQ:LSTR) Latest Stock Performance A Reflection Of Its Financial Health?

Simply Wall St
·4 mins read

Most readers would already be aware that Landstar System's (NASDAQ:LSTR) stock increased significantly by 21% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Landstar System'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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for Landstar System

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 Landstar System is:

26% = US$168m ÷ US$649m (Based on the trailing twelve months to June 2020).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.26 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. 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.

Landstar System's Earnings Growth And 26% ROE

To begin with, Landstar System has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 14% the company's ROE is quite impressive. This likely paved the way for the modest 12% net income growth seen by Landstar System over the past five years. growth

We then compared Landstar System's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 8.3% 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. Doing so will help them establish if the stock's future looks promising or ominous. Is LSTR fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Landstar System Making Efficient Use Of Its Profits?

Landstar System has a low three-year median payout ratio of 10%, meaning that the company retains the remaining 90% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Besides, Landstar System has been paying dividends for at least ten years or more. 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's future payout ratio is expected to rise to 26% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Conclusion

In total, we are pretty happy with Landstar System's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.