<!-- HTML_TAG_START -->NasdaqGS:BCPC Past Earnings Growth December 29th 2024<!-- HTML_TAG_END -->
Balchem (NASDAQ:BCPC) has had a rough month with its share price down 8.5%. 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. In this article, we decided to focus on Balchem’s ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company’s success at turning shareholder investments into profits.
View our latest analysis for Balchem
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 Balchem is:
10% = US$122m ÷ US$1.2b (Based on the trailing twelve months to September 2024).
The ‘return’ refers to a company’s earnings over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.10.
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. 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.
At first glance, Balchem’s ROE doesn’t look very promising. However, given that the company’s ROE is similar to the average industry ROE of 10%, we may spare it some thought. Having said that, Balchem has shown a modest net income growth of 8.2% over the past five years. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.
We then performed a comparison between Balchem’s net income growth with the industry, which revealed that the company’s growth is similar to the average industry growth of 9.5% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. 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. What is BCPC worth today? The intrinsic value infographic in our free research report helps visualize whether BCPC is currently mispriced by the market.
