Voyager Therapeutics, Inc.'s (NASDAQ:VYGR) Stock's On An Uptrend: Are Strong Financials Guiding The Market?
Voyager Therapeutics (NASDAQ:VYGR) has had a great run on the share market with its stock up by a significant 85% over the last three months. 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. Specifically, we decided to study Voyager Therapeutics' ROE in this article.
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 Voyager Therapeutics
How To Calculate Return On Equity?
Return on equity 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 Voyager Therapeutics is:
46% = US$99m ÷ US$217m (Based on the trailing twelve months to March 2023).
The 'return' is the profit over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.46 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. 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.
Voyager Therapeutics' Earnings Growth And 46% ROE
Firstly, we acknowledge that Voyager Therapeutics has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 24% which is quite remarkable. As a result, Voyager Therapeutics' exceptional 27% net income growth seen over the past five years, doesn't come as a surprise.
Next, on comparing Voyager Therapeutics' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 33% 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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Voyager Therapeutics fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Voyager Therapeutics Making Efficient Use Of Its Profits?
Given that Voyager Therapeutics doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Summary
On the whole, we feel that Voyager Therapeutics' 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. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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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.
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