Is Regeneron Pharmaceuticals, Inc.'s (NASDAQ:REGN) Latest Stock Performance A Reflection Of Its Financial Health?
Regeneron Pharmaceuticals (NASDAQ:REGN) has had a great run on the share market with its stock up by a significant 11% over the last three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Regeneron Pharmaceuticals' ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Regeneron Pharmaceuticals
How Do You 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 Regeneron Pharmaceuticals is:
33% = US$4.0b ÷ US$12b (Based on the trailing twelve months to March 2021).
The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.33 in profit.
Why Is ROE Important For Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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 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.
A Side By Side comparison of Regeneron Pharmaceuticals' Earnings Growth And 33% ROE
First thing first, we like that Regeneron Pharmaceuticals has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 18% which is quite remarkable. Under the circumstances, Regeneron Pharmaceuticals' considerable five year net income growth of 31% was to be expected.
Next, on comparing with the industry net income growth, we found that Regeneron Pharmaceuticals' growth is quite high when compared to the industry average growth of 22% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. 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. What is REGN worth today? The intrinsic value infographic in our free research report helps visualize whether REGN is currently mispriced by the market.
Is Regeneron Pharmaceuticals Using Its Retained Earnings Effectively?
Summary
Overall, we are quite pleased with Regeneron Pharmaceuticals' 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. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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.
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