<!-- HTML_TAG_START -->NasdaqCM:TIPT Past Earnings Growth December 29th 2024<!-- HTML_TAG_END -->
With its stock down 9.2% over the past month, it is easy to disregard Tiptree (NASDAQ:TIPT). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Specifically, we decided to study Tiptree’s 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. Put another way, it reveals the company’s success at turning shareholder investments into profits.
View our latest analysis for Tiptree
ROE 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 Tiptree is:
11% = US$74m ÷ US$656m (Based on the trailing twelve months to September 2024).
The ‘return’ is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.11 in profit.
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. 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.
At first glance, Tiptree seems to have a decent ROE. Even so, when compared with the average industry ROE of 14%, we aren’t very excited. However, we are pleased to see the impressive 25% net income growth reported by Tiptree over the past five years. We reckon that there could be other factors at play here. Such as – high earnings retention or an efficient management in place. However, not to forget, the company does have a decent ROE to begin with, just that it is lower than the industry average. So this certainly also provides some context to the high earnings growth seen by the company.
As a next step, we compared Tiptree’s net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 13%.
The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is Tiptree fairly valued compared to other companies? These 3 valuation measures might help you decide.
