U.S. markets open in 1 hour 24 minutes
  • S&P Futures

    4,540.75
    +16.50 (+0.36%)
     
  • Dow Futures

    35,025.00
    +115.00 (+0.33%)
     
  • Nasdaq Futures

    15,138.25
    +104.75 (+0.70%)
     
  • Russell 2000 Futures

    2,066.60
    +7.40 (+0.36%)
     
  • Crude Oil

    86.25
    -0.71 (-0.82%)
     
  • Gold

    1,840.40
    -2.80 (-0.15%)
     
  • Silver

    24.25
    +0.02 (+0.10%)
     
  • EUR/USD

    1.1342
    -0.0005 (-0.05%)
     
  • 10-Yr Bond

    1.8270
    0.0000 (0.00%)
     
  • Vix

    23.19
    +0.40 (+1.76%)
     
  • GBP/USD

    1.3615
    +0.0003 (+0.02%)
     
  • USD/JPY

    114.2390
    -0.1140 (-0.10%)
     
  • BTC-USD

    42,054.41
    -116.04 (-0.28%)
     
  • CMC Crypto 200

    998.44
    +3.69 (+0.37%)
     
  • FTSE 100

    7,578.54
    -11.12 (-0.15%)
     
  • Nikkei 225

    27,772.93
    +305.70 (+1.11%)
     

Is Vishay Intertechnology, Inc.'s (NYSE:VSH) Latest Stock Performance A Reflection Of Its Financial Health?

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Vishay Intertechnology (NYSE:VSH) has had a great run on the share market with its stock up by a significant 12% over the last month. 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. Specifically, we decided to study Vishay Intertechnology's 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Vishay Intertechnology

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 Vishay Intertechnology is:

17% = US$300m ÷ US$1.7b (Based on the trailing twelve months to October 2021).

The 'return' is the yearly profit. That means that for every $1 worth of shareholders' equity, the company generated $0.17 in profit.

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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Vishay Intertechnology's Earnings Growth And 17% ROE

To begin with, Vishay Intertechnology seems to have a respectable ROE. On comparing with the average industry ROE of 14% the company's ROE looks pretty remarkable. This probably laid the ground for Vishay Intertechnology's significant 28% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Vishay Intertechnology's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 13% in the same period.

past-earnings-growth
past-earnings-growth

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. If you're wondering about Vishay Intertechnology's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Vishay Intertechnology Making Efficient Use Of Its Profits?

Vishay Intertechnology's three-year median payout ratio is a pretty moderate 28%, meaning the company retains 72% of its income. By the looks of it, the dividend is well covered and Vishay Intertechnology is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Moreover, Vishay Intertechnology is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 16% over the next three years. Regardless, the ROE is not expected to change much for the company despite the lower expected payout ratio.

Summary

On the whole, we feel that Vishay Intertechnology's performance has been quite good. 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, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.