Is Physicians Realty Trust's (NYSE:DOC) Recent Stock Performance Influenced By Its Financials In Any Way?
Physicians Realty Trust's (NYSE:DOC) stock is up by 3.4% 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 investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Physicians Realty Trust's ROE in this article.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Physicians Realty Trust
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 Physicians Realty Trust is:
2.6% = US$72m ÷ US$2.8b (Based on the trailing twelve months to June 2021).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.03 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
A Side By Side comparison of Physicians Realty Trust's Earnings Growth And 2.6% ROE
It is quite clear that Physicians Realty Trust's ROE is rather low. Not just that, even compared to the industry average of 5.5%, the company's ROE is entirely unremarkable. In spite of this, Physicians Realty Trust was able to grow its net income considerably, at a rate of 23% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.
Next, on comparing with the industry net income growth, we found that Physicians Realty Trust's growth is quite high when compared to the industry average growth of 8.8% in the same period, which is great to see.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is DOC fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is Physicians Realty Trust Efficiently Re-investing Its Profits?
Physicians Realty Trust seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 84%, meaning the company retains only 16% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings significantly, as we saw above.
Additionally, Physicians Realty Trust has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 82%. However, Physicians Realty Trust's ROE is predicted to rise to 3.2% despite there being no anticipated change in its payout ratio.
Conclusion
In total, it does look like Physicians Realty Trust has some positive aspects to its business. That is, quite an impressive growth in earnings. However, the low profit retention means that the company's earnings growth could have been higher, had it been reinvesting a higher portion of its profits. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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. 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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