It is hard to get excited after looking at Minerals Technologies’ (NYSE:MTX) recent performance, when its stock has declined 15% over the past three months. We, however decided to study the company’s financials to determine if they have got anything to do with the price decline. Long-term fundamentals are usually what drive market outcomes, so it’s worth paying close attention. Particularly, we will be paying attention to Minerals 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 simpler terms, it measures the profitability of a company in relation to shareholder’s equity.
Check out our latest analysis for Minerals Technologies
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Minerals Technologies is:
9.6% = US$171m ÷ US$1.8b (Based on the trailing twelve months to December 2024).
The ‘return’ is the profit over the last twelve months. That means that for every $1 worth of shareholders’ equity, the company generated $0.10 in profit.
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, Minerals Technologies’ ROE doesn’t look very promising. However, given that the company’s ROE is similar to the average industry ROE of 9.8%, we may spare it some thought. Having said that, Minerals Technologies’ five year net income decline rate was 2.8%. Bear in mind, the company does have a slightly low ROE. Hence, this goes some way in explaining the shrinking earnings.
However, when we compared Minerals Technologies’ growth with the industry we found that while the company’s earnings have been shrinking, the industry has seen an earnings growth of 10% in the same period. This is quite worrisome.
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. Doing so will help them establish if the stock’s future looks promising or ominous. What is MTX worth today? The intrinsic value infographic in our free research report helps visualize whether MTX is currently mispriced by the market.
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