The RMR Group Inc.'s (NASDAQ:RMR) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?
RMR Group (NASDAQ:RMR) has had a rough three months with its share price down 19%. However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. In this article, we decided to focus on RMR Group's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for RMR Group
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 RMR Group is:
12% = US$52m ÷ US$422m (Based on the trailing twelve months to December 2024).
The 'return' is the income the business earned over the last year. That means that for every $1 worth of shareholders' equity, the company generated $0.12 in profit.
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company's earnings growth potential. 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.
To begin with, RMR Group seems to have a respectable ROE. On comparing with the average industry ROE of 8.0% the company's ROE looks pretty remarkable. This certainly adds some context to RMR Group's decent 5.6% net income growth seen over the past five years.
Next, on comparing RMR Group's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 5.6% over the last few years.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is RMR worth today? The intrinsic value infographic in our free research report helps visualize whether RMR is currently mispriced by the market.
RMR Group has a significant three-year median payout ratio of 72%, meaning that it is left with only 28% 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.
Moreover, RMR Group is determined to keep sharing its profits with shareholders which we infer from its long history of nine years of paying a dividend.
On the whole, we feel that RMR Group's performance has been quite good. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Up till now, we've only made a short study of the company's growth data. So it may be worth checking this free detailed graph of RMR Group's past earnings, as well as revenue and cash flows to get a deeper insight into the company's performance.
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.
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