It is hard to get excited after looking at Graco’s (NYSE:GGG) recent performance, when its stock has declined 5.6% over the past three months. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Graco’s ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company’s success at turning shareholder investments into profits.
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 Graco is:
19% = US$498m ÷ US$2.6b (Based on the trailing twelve months to September 2025).
The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.19 in profit.
View our latest analysis for Graco
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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 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, Graco’s ROE looks acceptable. Especially when compared to the industry average of 11% the company’s ROE looks pretty impressive. This certainly adds some context to Graco’s decent 6.7% net income growth seen over the past five years.
As a next step, we compared Graco’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 16% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Is GGG fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
