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Will Weakness in BioDelivery Sciences International, Inc.'s (NASDAQ:BDSI) Stock Prove Temporary Given Strong Fundamentals?

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·3 min read
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  • BDSI

BioDelivery Sciences International (NASDAQ:BDSI) has had a rough three months with its share price down 5.5%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to BioDelivery Sciences International's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for BioDelivery Sciences International

How To 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 BioDelivery Sciences International is:

24% = US$26m ÷ US$109m (Based on the trailing twelve months to March 2021).

The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.24 in profit.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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 BioDelivery Sciences International's Earnings Growth And 24% ROE

First thing first, we like that BioDelivery Sciences International has an impressive ROE. Further, even comparing with the industry average if 23%, the company's ROE is quite respectable. As a result, BioDelivery Sciences International's remarkable 36% net income growth seen over the past 5 years is likely aided by its high ROE.

Next, on comparing with the industry net income growth, we found that BioDelivery Sciences International's growth is quite high when compared to the industry average growth of 21% in the same period, which is great to see.

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. This then helps them determine if the stock is placed for a bright or bleak future. Is BioDelivery Sciences International fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is BioDelivery Sciences International Efficiently Re-investing Its Profits?

Summary

In total, we are pretty happy with BioDelivery Sciences International'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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. 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.

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