U.S. markets closed
  • S&P 500

    4,432.99
    -40.76 (-0.91%)
     
  • Dow 30

    34,584.88
    -166.44 (-0.48%)
     
  • Nasdaq

    15,043.97
    -137.96 (-0.91%)
     
  • Russell 2000

    2,236.87
    +3.96 (+0.18%)
     
  • Crude Oil

    71.96
    -0.65 (-0.90%)
     
  • Gold

    1,753.90
    -2.80 (-0.16%)
     
  • Silver

    22.42
    -0.33 (-1.44%)
     
  • EUR/USD

    1.1732
    -0.0040 (-0.34%)
     
  • 10-Yr Bond

    1.3700
    +0.0390 (+2.93%)
     
  • GBP/USD

    1.3737
    -0.0059 (-0.43%)
     
  • USD/JPY

    109.8950
    +0.1770 (+0.16%)
     
  • BTC-USD

    47,516.29
    -861.96 (-1.78%)
     
  • CMC Crypto 200

    1,193.48
    -32.05 (-2.62%)
     
  • FTSE 100

    6,963.64
    -63.84 (-0.91%)
     
  • Nikkei 225

    30,500.05
    +176.71 (+0.58%)
     

Should Weakness in ICU Medical, Inc.'s (NASDAQ:ICUI) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

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

With its stock down 14% over the past three months, it is easy to disregard ICU Medical (NASDAQ:ICUI). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study ICU Medical's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for ICU Medical

How Is ROE Calculated?

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 ICU Medical is:

6.3% = US$87m ÷ US$1.4b (Based on the trailing twelve months to March 2020).

The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.06.

What Has ROE Got To Do With 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.

ICU Medical's Earnings Growth And 6.3% ROE

At first glance, ICU Medical's ROE doesn't look very promising. Next, when compared to the average industry ROE of 11%, the company's ROE leaves us feeling even less enthusiastic. ICU Medical was still able to see a decent net income growth of 11% over the past five years. So, there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

We then performed a comparison between ICU Medical's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 13% in the same period.

past-earnings-growth
past-earnings-growth

Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). 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 ICU Medical's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is ICU Medical Making Efficient Use Of Its Profits?

Given that ICU Medical 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 do feel that ICU Medical has some positive attributes. With a high rate of reinvestment, albeit at a low ROE, the company has managed to see a considerable growth in its earnings. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. 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. 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@simplywallst.com.