Oxbridge Re Holdings Limited's (NASDAQ:OXBR) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?
With its stock down 32% over the past three months, it is easy to disregard Oxbridge Re Holdings (NASDAQ:OXBR). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Oxbridge Re Holdings' 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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
See our latest analysis for Oxbridge Re Holdings
How Do You 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 Oxbridge Re Holdings is:
47% = US$7.8m ÷ US$16m (Based on the trailing twelve months to June 2022).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.47 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. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
Oxbridge Re Holdings' Earnings Growth And 47% ROE
To begin with, Oxbridge Re Holdings has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 11% also doesn't go unnoticed by us. Under the circumstances, Oxbridge Re Holdings' considerable five year net income growth of 70% was to be expected.
As a next step, we compared Oxbridge Re Holdings' 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 14%.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Oxbridge Re Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Oxbridge Re Holdings Making Efficient Use Of Its Profits?
Oxbridge Re Holdings doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.
Summary
Overall, we are quite pleased with Oxbridge Re Holdings' performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. To know the 2 risks we have identified for Oxbridge Re Holdings visit our risks dashboard for free.
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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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