Will Weakness in ArcBest Corporation's (NASDAQ:ARCB) Stock Prove Temporary Given Strong Fundamentals?

Yahoo

15-04-2025

It is hard to get excited after looking at ArcBest's (NASDAQ:ARCB) recent performance, when its stock has declined 38% over the past three months. But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. Particularly, we will be paying attention to ArcBest's ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for ArcBest is:
13% = US$173m ÷ US$1.3b (Based on the trailing twelve months to December 2024).
The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.13 in profit.
Check out our latest analysis for ArcBest
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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
To start with, ArcBest's ROE looks acceptable. Even when compared to the industry average of 14% the company's ROE looks quite decent. This probably goes some way in explaining ArcBest's moderate 18% growth over the past five years amongst other factors.
Next, on comparing with the industry net income growth, we found that ArcBest's growth is quite high when compared to the industry average growth of 6.0% in the same period, which is great to see.
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). Doing so will help them establish if the stock's future looks promising or ominous. What is ARCB worth today? The intrinsic value infographic in our free research report helps visualize whether ARCB is currently mispriced by the market.
ArcBest's three-year median payout ratio to shareholders is 5.9% (implying that it retains 94% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
Moreover, ArcBest is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 4.7%. As a result, ArcBest'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 ArcBest's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. 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.
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