PHX Minerals Inc.’s (NYSE:PHX) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

editorial-team@simplywallst.com (Simply Wall St)

Sat, Apr 12, 2025, 7:40 AM 3 min read

With its stock down 13% over the past three months, it is easy to disregard PHX Minerals (NYSE:PHX). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study PHX Minerals’ ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for PHX Minerals is:

1.9% = US$2.3m ÷ US$122m (Based on the trailing twelve months to December 2024).

The ‘return’ refers to a company’s earnings over the last year. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.02 in profit.

View our latest analysis for PHX Minerals

So far, we’ve learned that ROE is a measure of a company’s profitability. 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.

It is hard to argue that PHX Minerals’ ROE is much good in and of itself. Even when compared to the industry average of 14%, the ROE figure is pretty disappointing. Despite this, surprisingly, PHX Minerals saw an exceptional 71% net income growth over the past five years. We reckon that there could be other factors at play here. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared PHX Minerals’ net income growth with the industry and we’re pleased to see that the company’s growth figure is higher when compared with the industry which has a growth rate of 38% in the same 5-year period.