Is ITT Inc.'s (NYSE:ITT) Latest Stock Performance A Reflection Of Its Financial Health?
ITT's (NYSE:ITT) stock is up by a considerable 21% over the past month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on ITT's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for ITT is:
19% = US$518m ÷ US$2.8b (Based on the trailing twelve months to March 2025).
The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.19 in profit.
See our latest analysis for ITT
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. 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.
At first glance, ITT seems to have a decent ROE. Especially when compared to the industry average of 13% the company's ROE looks pretty impressive. This probably laid the ground for ITT's significant 22% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared ITT's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 16%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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 ITT fairly valued? This infographic on the company's intrinsic value has everything you need to know.
ITT's ' three-year median payout ratio is on the lower side at 23% implying that it is retaining a higher percentage (77%) of its profits. So it looks like ITT is reinvesting profits heavily to grow its business, which shows in its earnings growth.
Additionally, ITT has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 19%. As a result, ITT's ROE is not expected to change by much either, which we inferred from the analyst estimate of 16% for future ROE.
In total, we are pretty happy with ITT's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
17 minutes ago
- Bloomberg
Senate to Keep Spectrum Sales in Tax Bill, Key Republican Says
A key Republican said senators have reached an agreement to reauthorize spectrum sales to internet companies that would generate billions of dollars in revenue toward funding US President Donald Trump's sweeping tax cuts and spending bill. Spectrum sales were included in the House version of the reconciliation package but the provision had drawn objections from South Dakota Republican Senator Mike Rounds, who previously said they risked undermining the US military's communications capabilities.
CNN
21 minutes ago
- CNN
Why Tesla now needs the EV tax credit that Musk once said should go away
It wasn't long ago that Tesla CEO Elon Musk was advocating for ending the $7,500 tax credit for buyers of electric vehicles. 'Take away the subsidies. It will only help Tesla,' he said in a post on his social media platform X last year, adding 'Also remove the subsidies from all industries!' But now, with House budget and tax bill known as the 'big, beautiful bill' proposing to end that tax credit, he and Tesla are suddenly arguing for the continuation of those same credits as the Senate debates its own version of the bill. 'Abruptly ending the energy tax credits would threaten America's energy independence and the reliability of our grid' said Tesla's solar power unit in its own post on X late last month. 'There is no change to tax incentives for oil & gas, just EV/solar,' Musk said in a follow-up post. The turnabout may have to do with the recent financial troubles at Tesla. Many experts believed that getting rid of the EV tax credit would hurt legacy automakers, which continue to lose money on their EV operations, more than it would hurt Tesla. But Tesla's sales took a nosedive this year, and it needs the credits to maintain buyer demand. The battle over EV tax credits, and Musk's broader opposition to the Republicans' budget and taxation bill, has caused a major split between President Donald Trump and Musk – a member of the administration's inner circle as recently as last week. The outcome could endanger the key legislative priority of Trump and Republicans. It could also be affect the finances of the beleaguered Tesla. Trump and House Speaker Mike Johnson have both suggested that the loss of federal support for EV's is driving Musk's opposition to the bill. 'Elon and I had a great relationship, I don't know if we will anymore,' Trump told reporters Thursday. 'I am very disappointed. Elon knew the inner workings of this bill… all of a sudden he had a problem and he only developed the problem after he found out we had to cut the EV mandate.' Despite Trump's reference to an EV mandate, there has never been a federal rule requiring Americans buy EVs rather than gasoline-powered cars. But the Biden administration did pass the $7,500 EV tax credit in an effort to spur demand for EVs. Musk immediately denied removal of the EV tax credit was the reason for his opposition to the bill. 'Keep the EV/solar incentive cuts in the bill, even though no oil & gas subsidies are touched (very unfair!!), but ditch the MOUNTAIN of DISGUSTING PORK in the bill,' he posted on X shortly after Trump's remarks. Tesla shares (TSLA) fell 14% following the exchange. Musk has focused most of his criticism on how the domestic policy bill would balloon the deficit. However, he is also no longer is arguing that ending the EV tax credit would be good for Tesla. Tesla did not respond to a request for comment. However, Musk's shift on the EV tax credit likely reflects changes at Tesla since late last year. Backlash to Musk's political activities played a major role in the company's recent sales troubles, including its first drop in annual sales in 2024 and its biggest ever drop in its sales during the first three months of the year. That resulted in a 71% plunge in net income in the first quarter. While the $7,500 EV tax credit goes to car buyers, it indirectly benefits EV makers by increasing demand. When an earlier version was phased out in 2019, Tesla was forced to cut prices to keep buyers interested. It's not just Musk who changed his opinion on the credit's important to Tesla. The same analysts who once believed removing the EV tax credit would help Tesla are now concerned over its loss. In a note to clients the day after the election, Garrett Nelson, an analyst for CFRA Research, wrote that ending the credit 'will widen Tesla's competitive moat by making competing EV models even more uneconomic, as we believe (Tesla) is the only profitable manufacturer of EVs.' But now, Nelson is expressing worry over Tesla's value if the credits go away. 'Our view is the 'Big Beautiful Bill' would be a net negative for Tesla, as tax credits for EVs, energy storage and solar would be going away,' Nelson said in response to questions from CNN. 'That, and ongoing EV market share losses in China and Europe, are some of the primary reasons why we downgraded the stock in April.' Still, despite cutting his price target for Tesla, Nelson still has a buy recommendation on Tesla shares, as does Dan Ives, another Tesla bull. The tech analyst for Wedbush Securities said the change in finances at Tesla make the tax credits more important than in the past. 'Musk has definitely changed his tune from earlier on this,' Ives told CNN. 'The reality is it will hurt Tesla less than other EV makers, but it will still hurt. And Tesla needs all of the demand help it can get.' Under current bill language, the tax credit remains in place for upstart EV makers like Rivian and Lucid but goes away for Tesla and most legacy automakers, said John Murphy, auto analyst at Bank of America. But he said the greatest challenge for Tesla is that demand for EV among American buyers appears to have stalled. 'I think 8% market share might be the high water mark for EV,' he said at a presentation Wedneday, speaking about overall demand for electric vehicles in the US market. Because of that, and the lack of new Tesla models, especially a lower-priced version that had been promised, 'I think (Musk) is going to be challenged to grow volume.'
New York Times
21 minutes ago
- New York Times
Trump Threatens Musk Contracts as Feud Escalates
President Trump threatened to cut billions of dollars in federal contracts and tax subsidies for Elon Musk's companies on Thursday, the latest escalation in the growing feud between the two men. 'The easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon's Governmental Subsidies and Contracts,' the president wrote on Truth Social. 'I was always surprised that Biden didn't do it!' Last year, Mr. Musk's companies were promised $3 billion across nearly 100 different contracts with 17 federal agencies. Most of the contracts were for SpaceX, Mr. Musk's space technology company. Tesla, his electric vehicle company, also has contracts with the federal government. But the relationship between the two men very publicly dissolved Thursday. Mr. Musk until last week was a top presidential adviser and has since turned into a critic of one of Mr. Trump's priorities. Mr. Musk has called the president's signature legislation currently moving through Congress a 'disgusting abomination.' The two lashed out at each other from on their own social media platforms on Thursday. 'Elon was 'wearing thin,' I asked him to leave, I took away his EV Mandate that forced everyone to buy Electric Cars that nobody else wanted (that he knew for months I was going to do!), and he just went CRAZY!' Mr. Trump wrote on Truth Social. Mr. Musk responded on X, the social media platform he owns, 'Such an obvious lie. So sad.'
