U.S. markets closed
  • S&P Futures

    4,123.75
    -2.75 (-0.07%)
     
  • Dow Futures

    33,707.00
    +4.00 (+0.01%)
     
  • Nasdaq Futures

    13,754.00
    -40.25 (-0.29%)
     
  • Russell 2000 Futures

    2,187.00
    +3.00 (+0.14%)
     
  • Crude Oil

    62.61
    +0.17 (+0.27%)
     
  • Gold

    1,778.80
    +0.40 (+0.02%)
     
  • Silver

    25.83
    -0.01 (-0.02%)
     
  • EUR/USD

    1.2041
    0.0000 (-0.00%)
     
  • 10-Yr Bond

    1.5620
    -0.0390 (-2.44%)
     
  • Vix

    18.68
    +1.39 (+8.04%)
     
  • GBP/USD

    1.3933
    -0.0003 (-0.03%)
     
  • USD/JPY

    108.0750
    +0.0050 (+0.00%)
     
  • BTC-USD

    55,687.48
    -36.79 (-0.07%)
     
  • CMC Crypto 200

    1,271.64
    +37.23 (+3.02%)
     
  • FTSE 100

    6,859.87
    -140.21 (-2.00%)
     
  • Nikkei 225

    28,704.35
    -396.03 (-1.36%)
     

Is Urban Edge Properties (NYSE:UE) A High Quality Stock To Own?

  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. To keep the lesson grounded in practicality, we'll use ROE to better understand Urban Edge Properties (NYSE:UE).

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Urban Edge Properties

How Is ROE Calculated?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Urban Edge Properties is:

9.8% = US$98m ÷ US$996m (Based on the trailing twelve months to December 2020).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.10 in profit.

Does Urban Edge Properties Have A Good Return On Equity?

By comparing a company's ROE with its industry average, we can get a quick measure of how good it is. Importantly, this is far from a perfect measure, because companies differ significantly within the same industry classification. Pleasingly, Urban Edge Properties has a superior ROE than the average (5.1%) in the REITs industry.

roe
roe

That's what we like to see. With that said, a high ROE doesn't always indicate high profitability. Especially when a firm uses high levels of debt to finance its debt which may boost its ROE but the high leverage puts the company at risk. Our risks dashboardshould have the 5 risks we have identified for Urban Edge Properties.

How Does Debt Impact ROE?

Companies usually need to invest money to grow their profits. That cash can come from retained earnings, issuing new shares (equity), or debt. In the case of the first and second options, the ROE will reflect this use of cash, for growth. In the latter case, the debt required for growth will boost returns, but will not impact the shareholders' equity. That will make the ROE look better than if no debt was used.

Urban Edge Properties' Debt And Its 9.8% ROE

Urban Edge Properties does use a high amount of debt to increase returns. It has a debt to equity ratio of 1.59. Its ROE is quite low, even with the use of significant debt; that's not a good result, in our opinion. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.

Summary

Return on equity is one way we can compare its business quality of different companies. Companies that can achieve high returns on equity without too much debt are generally of good quality. All else being equal, a higher ROE is better.

Having said that, while ROE is a useful indicator of business quality, you'll have to look at a whole range of factors to determine the right price to buy a stock. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. So you might want to check this FREE visualization of analyst forecasts for the company.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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 (at) simplywallst.com.