U.S. markets open in 1 hour 52 minutes
  • S&P Futures

    4,079.75
    -2.00 (-0.05%)
     
  • Dow Futures

    34,403.00
    -26.00 (-0.08%)
     
  • Nasdaq Futures

    12,048.25
    -14.50 (-0.12%)
     
  • Russell 2000 Futures

    1,883.40
    -0.30 (-0.02%)
     
  • Crude Oil

    81.71
    +0.49 (+0.60%)
     
  • Gold

    1,812.40
    -2.80 (-0.15%)
     
  • Silver

    22.91
    +0.06 (+0.28%)
     
  • EUR/USD

    1.0537
    +0.0009 (+0.08%)
     
  • 10-Yr Bond

    3.5290
    0.0000 (0.00%)
     
  • Vix

    20.26
    -0.32 (-1.55%)
     
  • GBP/USD

    1.2280
    +0.0024 (+0.20%)
     
  • USD/JPY

    134.0170
    -1.2890 (-0.95%)
     
  • BTC-USD

    17,017.65
    -113.76 (-0.66%)
     
  • CMC Crypto 200

    404.17
    -1.98 (-0.49%)
     
  • FTSE 100

    7,545.52
    -12.97 (-0.17%)
     
  • Nikkei 225

    27,777.90
    -448.18 (-1.59%)
     

Will Weakness in Everspin Technologies, Inc.'s (NASDAQ:MRAM) Stock Prove Temporary Given Strong Fundamentals?

With its stock down 29% over the past month, it is easy to disregard Everspin Technologies (NASDAQ:MRAM). 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 Everspin Technologies' ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for Everspin Technologies

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for Everspin Technologies is:

25% = US$8.2m ÷ US$33m (Based on the trailing twelve months to June 2022).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.25 in profit.

What Has ROE Got To Do With Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

A Side By Side comparison of Everspin Technologies' Earnings Growth And 25% ROE

First thing first, we like that Everspin Technologies has an impressive ROE. Secondly, even when compared to the industry average of 19% the company's ROE is quite impressive. Under the circumstances, Everspin Technologies' considerable five year net income growth of 42% was to be expected.

We then compared Everspin Technologies' 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 26% 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. Is Everspin Technologies fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Everspin Technologies Efficiently Re-investing Its Profits?

Everspin Technologies doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.

Conclusion

Overall, we are quite pleased with Everspin Technologies' performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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.

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

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here