Does Air Transport Services Group, Inc.’s (NASDAQ:ATSG) latest stock performance reflect its financial health?
Most readers will already know that shares of Air Transport Services Group (NASDAQ:ATSG) have risen a significant 9.5% over the past month. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could influence the market. In this article, we have decided to focus on the ROE of Air Transport Services Group.
Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.
Check out our latest analysis for Air Transport Services Group
How to calculate return on equity?
The return on equity formula is:
Return on equity = Net income (from continuing operations) ÷ Equity
So, based on the above formula, the ROE for Air Transport Services Group is:
15% = $211 million ÷ $1.4 billion (based on trailing 12 months to June 2022).
“Yield” is the income the business has earned over the past year. Another way to think about this is that for every dollar of equity, the company was able to make a profit of $0.15.
Why is ROE important for earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of its profits the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.
15% profit growth and ROE of the Airline Services group
At first glance, Air Transport Services Group appears to have a decent ROE. Regardless, the company’s ROE is still well below the industry average of 24%. That said, the significant growth in net profit of 35% over five years recorded by Air Transport Services Group is a pleasant surprise. We believe there could be other aspects that positively influence the company’s earnings growth. For example, it is possible that the management of the company has made good strategic decisions or that the company has a low payout ratio. However, it’s worth remembering that the company has a decent ROE to start with, just that it’s below the industry average. So that also gives some color to the strong earnings growth the company is seeing.
Then, comparing with the net income growth of the sector, we found that the growth of the airline group is quite high compared to the average growth of the sector of 18% over the same period, which is great to see.
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. By doing so, he will get an idea if the title is heading for clear blue waters or if swampy waters await. If you’re wondering about the valuation of Air Transport Services Group, check out this indicator of its price/earnings ratio, relative to its sector.
Is Air Transport Services Group using its profits efficiently?
Air Transport Services Group currently pays no dividends, which essentially means that it has reinvested all of its profits back into the business. This certainly contributes to the high earnings growth number we discussed above.
Overall, we are quite satisfied with the performance of Air Transport Services Group. Specifically, we like that he reinvested a large portion of his profits at a moderate rate of return, which resulted in increased profits. That said, the latest forecasts from industry analysts show that the company’s earnings growth is expected to slow. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.