The recent performance of MP Materials (NYSE:MP), whose stock has fallen 9.9% over the past three months, is unlikely to get you excited. But if you look closely, given how the market usually rewards companies with strong financial health, that financial health may mean that share prices can rise in the long run. not. Especially today I would like to pay attention to his ROE of MP Materials.

ROE or Return on Equity is a useful tool for evaluating how effectively a company is able to generate returns on the investment it receives from its shareholders. Simply put, it is used to assess a company’s profitability in relation to its equity capital.

See our latest analysis of MP Materials

How do you calculate return on equity?

Return on equity can be calculated using the following formula:

Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity

So based on the formula above, the ROE for MP material is:

21% = US$251 million ÷ US$1.2 billion (based on the last 12 months to June 2022).

“Yield” is the annual profit. One way he conceptualizes this is that for every $1 of stockholders’ equity held, the company made $0.21 of his profit.

Why ROE Is Important to Profit Growth

It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Based on the amount of profits the company chooses to reinvest or “retain”, the company’s ability to generate profits in the future can be assessed. Assuming everything else is equal, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.

MP Materials revenue growth and 21% ROE

In the first place, MP Material’s ROE seems to be moderate. Even compared to the industry average of 20%, his ROE for the company looks impressive. This probably explains, among other factors, MP Materials’ massive net profit growth of 103% over the past five years. However, there may be other factors behind this growth as well. For example, the company’s dividend payout ratio is low, or it is managed efficiently.

Second, when compared to the industry’s net profit growth rate, MP Materials’ growth rate was significantly higher than the industry average growth rate of 28% over the same period. This is great.

Historical revenue growth

Historical revenue growth

Earnings growth is an important metric to consider when evaluating stocks. The next thing investors need to determine is whether expected earnings growth, or lack thereof, is already baked into the stock price. Doing so will help establish whether the stock’s future looks promising or ominous. Is MP Materials Fairly Rated Compared to Others? These three rating scales may help you decide.

Is MP Materials reinvesting profits efficiently?

MP Materials does not currently pay any dividends. This basically means that you are reinvesting all your profits back into your business. This definitely contributes to the high revenue growth rate discussed above.

Conclusion

Overall, we feel that MP Materials performed very well. In particular, it is great to see that the company has invested heavily in its business, has a high rate of return, and has seen a significant increase in revenue. That said, we expect the company’s revenue growth to slow, as predicted by current analyst estimates. Are these analyst expectations based on broader industry expectations or company fundamentals? Click here to go to our analyst predictions page for the company. increase.

Do you have feedback on this article? What interests you? contact directly with us. Or send an email to our editorial team (at) Simplywallst.com.

This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …

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