Helen of Troy Limited (NASDAQ:HELE) has experienced a significant increase in its stock price momentum, with a notable 15% rise over the past month. However, there are concerns about the impact of the company’s mixed fundamentals on this positive trend. In this article, we will focus on Helen of Troy’s Return on Equity (ROE) to assess its potential impact on the stock price.
ROE is a crucial metric for shareholders as it indicates the effectiveness of capital reinvestment. It measures the rate of return on the capital provided by the company’s shareholders. The formula for calculating ROE is net profit (from continuing operations) divided by shareholders’ equity.
Based on this formula, Helen of Troy’s ROE stands at 9.6%, calculated using the trailing twelve months to February 2023. This means that for every $1 worth of shareholders’ equity, the company generated $0.10 in profit.
At first glance, Helen of Troy’s ROE may not seem attractive. Comparing the company’s ROE to the broader industry, it is disappointing to see that its ROE falls below the industry average of 20%. This lower ROE could explain the company’s relatively low net income growth of 4.9% over the past five years, among other factors.
Furthermore, Helen of Troy’s net income growth is lower than the industry average growth of 33% in the same period. Earnings growth is a significant factor in stock valuation, and investors need to determine whether the expected earnings growth, or the lack thereof, is already factored into the share price. Analyzing the current analyst estimates suggests that the company’s earnings are expected to gain momentum. However, it is crucial to determine whether these expectations are based on general industry projections or the company’s specific fundamentals.
Another factor to consider is that Helen of Troy does not pay any dividends, meaning that all of its profits are being reinvested in the business. However, the company’s earnings growth has been relatively stagnant, raising concerns about the company’s overall performance. It is possible that the company’s business may be deteriorating.
Overall, the performance of Helen of Troy presents a mixed picture that can be interpreted in different ways. Although the company retains a high rate of profit, its low rate of return may be hindering earnings growth. However, according to analyst forecasts, the company’s earnings are expected to improve. It is essential to conduct further analysis to understand the basis for these expectations and whether they align with the broader industry trends.
Please note that this article is based on historical data and analyst forecasts and is not intended to provide financial advice. It is important to conduct thorough research and consider your own objectives and financial situation before making investment decisions. Remember that our analysis may not factor in the latest company announcements or qualitative material. Consult professional financial advisors for personalized advice.
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