editorial-team@simplywallst.com (Simply Wall St)
3 min read
In This Article:
Gorman-Rupp (NYSE:GRC) has had a rough week with its share price down 7.0%. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Gorman-Rupp’s ROE today.
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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
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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 Gorman-Rupp is:
12% = US$44m ÷ US$382m (Based on the trailing twelve months to March 2025).
The ‘return’ is the yearly profit. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.12.
See our latest analysis for Gorman-Rupp
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 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.
At first glance, Gorman-Rupp seems to have a decent ROE. Even when compared to the industry average of 13% the company’s ROE looks quite decent. Consequently, this likely laid the ground for the decent growth of 6.6% seen over the past five years by Gorman-Rupp.
Next, on comparing with the industry net income growth, we found that Gorman-Rupp’s reported growth was lower than the industry growth of 16% over the last few years, which is not something we like to see.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is GRC fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
