Is Skechers U.S.A., Inc.’s (NYSE:SKX) Stock’s Recent Performance Being Led By Its Attractive Financial Prospects?
Skechers U.S.A’s (NYSE:SKX) stock is up by a considerable 7.4% over the past month. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Skechers U.S.A’s ROE.
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.
See our latest analysis for Skechers U.S.A
How Do You Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Skechers U.S.A is:
13% = US$559m ÷ US$4.2b (Based on the trailing twelve months to June 2023).
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 $0.13 in profit.
What Is The Relationship Between ROE And Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.
Skechers U.S.A’s Earnings Growth And 13% ROE
To begin with, Skechers U.S.A seems to have a respectable ROE. Further, the company’s ROE is similar to the industry average of 14%. This certainly adds some context to Skechers U.S.A’s exceptional 22% net income growth seen over the past five years. However, there could also be other drivers behind this growth. Such as – high earnings retention or an efficient management in place.
As a next step, we compared Skechers U.S.A’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%.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is SKX worth today? The intrinsic value infographic in our free research report helps visualize whether SKX is currently mispriced by the market.
Is Skechers U.S.A Using Its Retained Earnings Effectively?
Given that Skechers U.S.A doesn’t pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Conclusion
Overall, we are quite pleased with Skechers U.S.A’s performance. In particular, it’s great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company’s earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for 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 only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
