editorial-team@simplywallst.com (Simply Wall St)
3 min read
In This Article:
Zebra Technologies (NASDAQ:ZBRA) has had a rough three months with its share price down 40%. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Zebra Technologies’ ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company’s shareholders.
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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 Zebra Technologies is:
15% = US$528m ÷ US$3.6b (Based on the trailing twelve months to December 2024).
The ‘return’ is the income the business earned over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.15.
View our latest analysis for Zebra Technologies
So far, we’ve learned that ROE is a measure of a company’s profitability. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
To begin with, Zebra Technologies seems to have a respectable ROE. Especially when compared to the industry average of 10% the company’s ROE looks pretty impressive. As you might expect, the 9.8% net income decline reported by Zebra Technologies is a bit of a surprise. Therefore, there might be some other aspects that could explain this. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.
However, when we compared Zebra Technologies’ growth with the industry we found that while the company’s earnings have been shrinking, the industry has seen an earnings growth of 13% in the same period. This is quite worrisome.
Earnings growth is a huge factor in stock valuation. 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. Is ZBRA fairly valued? This infographic on the company’s intrinsic value has everything you need to know.
