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Most readers already know that Quanex Building Products (NYSE:NX) stock is especially up 11% in the last 3 months. Since the market rewards strong monetary corporations over the long term, we wonder if this is the case in this case. Specifically, in this article we’re going to take a look at the ROE of Quanex Building Products.
ROE or retracement on equity is a useful tool for assessing how well a company can generate returns on the investment it has earned from its shareholders. Simply put, it evaluates a company’s profitability relative to its equity.
See our latest analysis for Quanex Building Products
The equity yield can be calculated using the formula:
Return on Equity = Net Income (from Continuing Operations) ÷ Stockholders’ Equity
So, based on the formula above, Quanex Building Products’ ROE is:
15% = $83 million ÷ $546 million (based on the last twelve months through October 2023).
The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.15 in profit.
We have already established that ROE is an effective indicator of profit generation for a company’s long-term profits. Based on how much of its profits the company decides to reinvest or “hold,” we must assess a company’s long-term ability to generate profits. Generally speaking, all things being equal, firms with higher levels of equity and profit retention have a higher growth rate than firms that do not share those attributes.
For starters, Quanex Building Products happens to have a respectable ROE. Additionally, the company’s ROE is similar to the industry average of 18%. As a result, this likely laid the groundwork for Quanex Building Products’ impressive 46% net profit. expansion over the past five years. There are other facets that can also definitely influence the expansion of the company’s profits, such as: retention of maximum profits or effective control.
Then, compared to the sector’s net profit expansion, we found that Quanex Building Products’ expansion is superior compared to the industry’s average expansion of 13% over the same period, which is wonderful to see.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. What is NX worth today? The intrinsic value infographic in our free research report helps visualize whether NX is currently mispriced by the market.
Quanex Building Products has a very low three-year average payout rate of 15%, which means you have the remaining 85% left to reinvest in your business. So, it turns out that control is massively reinvesting its profits to grow its business, which is reflected in its profit growth.
In addition, Quanex Building Products has paid dividends over a period of at least ten years, which means that the company is serious about sharing its profits with its shareholders. Based on the latest analyst estimates, we have found that the company’s long-term payout ratio is expected to remain at 12% over the next 3 years. As a result, forecasts recommend that Quanex Building Products’ long-term ROE will be 14%, returning to the existing ROE.
Overall, the functionality of Quanex Building Products has been pretty good. We especially like the fact that the company is reinvesting heavily in its business and at a maximum rate of return. Unsurprisingly, this has led to an impressive earnings expansion. That said, new industry analyst forecasts reveal that the company’s earnings expansion is expected to slow. To learn more about the company’s long-term earnings expansion forecasts, take a look at this overall analyst forecast report for the company.
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