It is hard to get excited after looking at Moog’s (NYSE:MOG.A) recent performance, when its stock has declined 12% over the past month. 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. In this article, we decided to focus on Moog’s ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Moog
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Moog is:
11% = US$207m ÷ US$1.9b (Based on the trailing twelve months to September 2024).
The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.11 in profit.
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or “retains” for future growth which then gives us an idea about the growth potential of the company. 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.
At first glance, Moog seems to have a decent ROE. Further, the company’s ROE is similar to the industry average of 12%. This probably goes some way in explaining Moog’s moderate 13% growth over the past five years amongst other factors.
Next, on comparing with the industry net income growth, we found that Moog’s growth is quite high when compared to the industry average growth of 8.9% in the same period, which is great to see.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock’s future looks promising or ominous. Has the market priced in the future outlook for MOG.A? You can find out in our latest intrinsic value infographic research report.
Moog’s three-year median payout ratio to shareholders is 20% (implying that it retains 80% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
