Most readers already know that DICK’S Sporting Goods (NYSE: DKS) stock is up 32% in the past three months. Given that the market rewards strong financial stocks over the long term, we wonder if this is the case in this case. In this article we decided to focus on the ROE from DICK’S Sporting Goods.
Return on Equity, or ROE, is an important metric for assessing how efficiently a company’s management is using the company’s capital. In other words, it’s a profitability metric that measures the return on the capital provided by the company’s shareholders.
Check out our latest analysis for DICK’S Sporting Goods
How do you calculate the return on equity?
The return on equity can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for DICK’S Sporting Goods is:
40% = $ 1.0 billion $ 2.6 billion (based on the last twelve months through May 2021).
“Return” refers to a company’s earnings over the past year. One way to conceptualize this is that for every $ 1 of shareholder equity the company made a profit of $ 0.40.
What is the Relationship Between ROE and Earnings Growth?
So far we have learned that the ROE measures how efficiently a company generates its profits. Depending on how much of these profits the company reinvests or “withholds” and how effectively this is done, we can then estimate the earnings growth potential of a company. In general, all other things being equal, companies with high ROE and retained earnings will grow faster than companies that do not share these attributes.
DICK’S Sporting Goods earnings growth and 40% ROE
First, we acknowledge that DICK’S Sporting Goods has a significantly high ROE. Additionally, the company’s ROE is higher compared to the industry average of 25%, which is quite remarkable. This should pave the way for the modest 12% net profit growth of DICK’S Sporting Goods over the past five years. growth
We then performed an industry comparison of DICK’S Sporting Goods net profit growth, which found that the company’s growth was in line with the average industry growth of 10% over the same period.
NYSE: DKS Past Earnings Growth Aug 22, 2021
The basis for increasing the value of a company is largely linked to its earnings development. Next, investors need to determine whether or not expected earnings growth is already included in the stock price. This then helps them determine whether the stock is placed for a bright or bleak future. Is DICK’S Sporting Goods valued fairly compared to other companies? These 3 benchmarks can help you make a decision.
Does DICK’S Sporting Goods use its profits efficiently?
DICK’S Sporting Goods has a 3 year median payout ratio of 28%, which means it keeps the remaining 72% of its profits. This suggests that the dividend is well covered, and given the company’s decent growth, it looks like management is efficiently reinvesting its profits.
In addition, DICK’S Sporting Goods has been paying dividends for at least ten years. This shows that the company is keen to share profits with its shareholders. Based on the latest analyst estimates, we have determined that the company’s future payout ratio is expected to remain stable at 25% for the next three years. However, forecasts suggest that DICK’S Sporting Goods’ future ROE will drop to 24%, although the company’s payout ratio is unlikely to change materially.
Overall, we are very satisfied with the performance of DICK’S Sporting Goods. In particular, it’s great to see that the company has invested heavily in its business and this, along with a high return on investment, has resulted in significant earnings growth. With that in mind, when we studied the latest analyst forecast, we found that while the company has seen growth in past earnings, analysts expect its future earnings to shrink. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to go to our analysts forecast page for the company.
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This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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