Haverty Furniture Companies (NYSE: HVT) had a tough three months with its share price down 9.0%. However, a closer look at his healthy finances might make you think again. Since fundamentals generally determine long-term market outcomes, the company is worth looking into. In particular, we will pay attention to the ROE of Haverty Furniture Companies today.
Return on Equity or ROE is a test of how effectively a company increases its value and manages investors’ money. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
How is ROE calculated?
Return on equity can be calculated using the formula:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Haverty Furniture Companies is:
32% = $92 million ÷ $292 million (based on trailing 12 months to September 2021).
The “yield” is the profit of the last twelve months. One way to conceptualize this is that for every $1 of share capital it has, the firm has made a profit of $0.32.
What does ROE have to do with earnings growth?
We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. Depending on how much of those earnings the company reinvests or “keeps”, and how efficiently it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.
Profit Growth and 32% ROE of Haverty Furniture Companies
First of all, we appreciate the fact that Haverty Furniture Companies has an impressive ROE. Moreover, even comparing with the industry average if 31%, the company’s ROE is quite respectable. Given the circumstances, the significant net income growth of 26% seen by Haverty Furniture Companies over the past five years is not surprising.
As a next step, we compared Haverty Furniture Companies’ net income growth with the industry, and fortunately, we found that the growth the company saw was above the industry average growth of 18%.
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or ominous. Has the market priced in HVT’s future prospects? You can find out in our latest intrinsic value infographic research report.
Are Haverty Furniture Companies Using Their Retained Earnings Effectively?
Haverty Furniture Companies has a large three-year median payout ratio of 52%, which means the company retains only 48% of its revenue. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.
Also, Haverty Furniture Companies has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.
Overall, we are quite satisfied with the performance of Haverty Furniture Companies. In particular, its high ROE is quite remarkable and also the probable explanation for its considerable earnings growth. Yet the company retains a small portion of its profits. Which means the company was able to increase its profits despite this, so it’s not that bad. That said, in studying current analyst estimates, we were concerned that while the company has increased earnings in the past, analysts expect earnings to decline in the future. For more on the latest analyst forecasts for the company, check out this visualization of analyst forecasts for the business.
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