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Most readers would already know that Comfort Systems USA ( NYSE:FIX ) stock has increased by a significant 20% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. In particular, I would like to pay attention to Comfort Systems USA’s ROE today.
Return on equity or ROE is a key measure used to evaluate how efficiently a company’s management is utilizing the company’s capital. In other words, it is a profitability ratio that measures the rate of return on the capital provided by a company’s shareholders.
Check out our latest analysis for Comfort Systems USA.
How do I calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, Comfort Systems USA’s ROE is:
24% = USD 287 million ÷ USD 1.2 billion (based on trailing twelve months to September 2023).
“Earnings” is the amount of your after-tax earnings over the past 12 months. One way he conceptualizes this is that for every dollar of shareholders’ equity, the company earned him $0.24 in profit.
What relationship does ROE have with profit growth?
So far, we have learned that ROE is a measure of a company’s profitability. Depending on how much of these profits a company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
Comfort Systems USA’s revenue growth and ROE 24%
Firstly, Comfort Systems USA has a very high ROE, which is interesting. Secondly, we can’t ignore the comparison to the average ROE of 11% reported by the industry. So it’s not really surprising that Comfort Systems USA has grown its net income by a strong 21% over the last five years.
We then compared Comfort Systems USA’s net income growth with the industry and found that the company’s growth was on par with the industry’s average growth rate of 20% over the same five-year period.
The foundations that give a company value have a lot to do with its revenue growth. Investors should check whether expected earnings growth or decline has been factored in in any case. By doing so, you can find out if the stock is headed for clear blue waters or if a swamp awaits. If you’re curious about Comfort Systems USA’s valuation, check out this metric of its price-to-earnings ratio compared to its industry.
Is Comfort Systems USA using its profits efficiently?
Comfort Systems USA has a very low three-year median payout ratio of 10.0%, allowing it to reinvest the remaining 90% back into the business. So it seems Comfort Systems USA is reinvesting a lot of its profits to grow its business, which is reflected in its revenue growth.
Furthermore, Comfort Systems USA is determined to continue sharing its profits with shareholders, as inferred by its long history of paying dividends for at least 10 years. According to existing analyst forecasts, the company’s future dividend payout ratio in the next three years is expected to drop to 6.9%. However, although the expected dividend payout ratio will decline, ROE is not expected to change significantly.
conclusion
Overall, we feel Comfort Systems USA is doing very well. In particular, it’s great to see that the company has invested heavily in its business, delivering strong revenue growth along with high rates of return. That said, the company’s revenue growth is expected to slow, as predicted by current analyst forecasts. Learn more about the company’s future revenue growth forecasts here. free Create a report on analyst forecasts to learn more about the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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