Are Strong Financial Prospects The Force That Is Driving The Momentum In Steppe Gold Ltd.'s TSE:STGO) Stock?
Steppe Gold (TSE:STGO) has had a great run on the share market with its stock up by a significant 12% over the last month. 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 Steppe Gold's ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
See our latest analysis for Steppe Gold
How Do You Calculate Return On Equity?
ROE 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 Steppe Gold is:
30% = US$14m ÷ US$48m (Based on the trailing twelve months to September 2023).
The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.30.
What Is The Relationship Between ROE And 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.
A Side By Side comparison of Steppe Gold's Earnings Growth And 30% ROE
First thing first, we like that Steppe Gold has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 9.4% which is quite remarkable. So, the substantial 31% net income growth seen by Steppe Gold over the past five years isn't overly surprising.
As a next step, we compared Steppe Gold's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 28% in the same period.
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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Steppe Gold's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
Is Steppe Gold Making Efficient Use Of Its Profits?
Given that Steppe Gold doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Conclusion
In total, we are pretty happy with Steppe Gold'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. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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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.
