Is SeaLink Travel Group Limited’s (ASX:SLK) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
View photosSeaLink Travel Group (ASX:SLK) has had a great run on the share market with its stock up by a significant 14% over the last month. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study SeaLink…
At a glance:
SeaLink Travel Group’s ROE in this article.” data-reactid=”28″ type=”text”>SeaLink Travel Group (ASX:SLK) has had a great run on the share market with its stock up by a significant 14% over the last month. We wonder if and what role the company’s financials play in that price change as a company’s long-term fundamentals usually dictate market outcomes. Specifically, we decided to study SeaLink Travel Group’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.
How Is ROE Calculated?
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for SeaLink Travel Group is:
5.6% = AU$17m ÷ AU$308m (Based on the trailing twelve months to December 2019).
The ‘return’ is the amount earned after tax over the last twelve months. So, this means that for every A$1 of its shareholder’s investments, the company generates a profit of A$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. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
A Side By Side comparison of SeaLink Travel Group’s Earnings Growth And 5.6% ROE
When you first look at it, SeaLink Travel Group’s ROE doesn’t look that attractive. A quick further study shows that the company’s ROE doesn’t compare favorably to the industry average of 8.8% either. SeaLink Travel Group was still able to see a decent net income growth of 10% over the past five years. So, there might be other aspects that are positively influencing the company’s earnings growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.
As a next step, we compared SeaLink Travel Group’s net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 10% in the same period.
infographic on the company’s intrinsic value has everything you need to know.” data-reactid=”54″ type=”text”>Earnings growth is a huge factor in stock valuation. 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. Is SLK fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
Is SeaLink Travel Group Using Its Retained Earnings Effectively?
SeaLink Travel Group has a significant three-year median payout ratio of 66%, meaning that it is left with only 34% to reinvest into its business. This implies that the company has been able to achieve decent earnings growth despite returning most of its profits to shareholders.
Besides, SeaLink Travel Group has been paying dividends over a period of six years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 58%. Regardless, the future ROE for SeaLink Travel Group is predicted to rise to 12% despite there being not much change expected in its payout ratio.
report on analyst forecasts for the company to find out more.” data-reactid=”63″ type=”text”>In total, it does look like SeaLink Travel Group has some positive aspects to its business. That is, quite an impressive growth in earnings. However, the low profit retention means that the company’s earnings growth could have been higher, had it been reinvesting a higher portion of its profits. Having said that, looking at the current analyst estimates, we found that the company’s earnings are expected to gain momentum. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.” data-reactid=”64″ type=”text”>
If you spot an error that warrants correction, please contact the editor at [email protected]. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.