Most readers will already know that Mueller Industries (NYSE:MLI) stock has risen 8.4% over the past three months. Given that markets reward strong financials over the long term, I wonder if this is the case. Especially today I want to pay attention to his ROE of Müller Industries.
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. In other words, ROE shows the return each dollar makes on a shareholder’s investment.
Check out the latest analysis from Mueller Industries.
How to calculate return on equity
of Formula for Return on Equity teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
Therefore, based on the above formula, Mueller Industries’ ROE is:
37% = US$663 million ÷ US$1.8 billion (based on last 12 months to December 2022).
“Revenue” is the amount after tax for the last 12 months. So, this means that for every $1 a shareholder invests, the company generates his $0.37 profit.
What does ROE have to do with revenue growth?
It has already been established that ROE serves as an efficient profit-making metric to gauge a company’s future earnings. Depending on how much of these earnings a company reinvests or “holds” and how effective it is, a company’s potential for revenue growth can be assessed. All else being equal, companies with both high return on equity and high profit margins typically have higher growth rates compared to companies without the same capabilities.
Side-by-side comparison of Mueller Industries’ revenue growth and 37% ROE
In the first place, Muller Industry’s ROE is quite high, which is interesting. Second, we don’t miss a comparison to the industry-reported average ROE of 13%. Under these circumstances, Mueller Industries’ five-year net profit was expected to grow by a whopping 50% of his.
As a next step, we compared Mueller Industries’ net profit growth to the industry and, fortunately, found that the company’s growth rate was higher than the industry average of 7.8%.
Earnings growth is an important metric to consider when evaluating stocks. Investors should check whether the expected earnings growth or decline is priced in. Doing so will help you see if the stock’s future looks promising or ominous. Is Mueller Industries rated fairly compared to other companies? These three rating scales may help you decide.
Is Müller Industries using its profits efficiently?
Mueller Industries has a low three-year median payout rate of 9.4%, indicating that it maintains a higher percentage of profits (91%). As such, Mueller Industries appears to be significantly reinvesting profits in growing its business, which is reflected in its earnings growth.
In addition, Mueller Industries has paid dividends for at least ten years. This means the company is serious about sharing profits with its shareholders.
Overall, I feel that Müller Industries is performing quite well. Specifically, I like that the company reinvests most of its profits at a high rate of return. Of course, this has led the company to significant revenue growth. If the company continues to grow earnings as it has in the past, it could have a positive impact on the stock price given how earnings per share impacts the long-term stock price. Remember that the price of a stock also depends on perceived risk. Investors should therefore always be aware of the risks involved before investing in a company. The risk dashboard has one risk he identified for Mueller Industries.
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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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