Most readers will already know that Sanmina (NASDAQ:SANM) stock has risen 7.5% over the past three months. Since the market usually pays for the long-term financial health of a company, we decided to study company fundamentals to see if they could impact the market.Specifically, I decided to study Sanmina’s ROE for this article.
ROE or Return on Equity is a useful tool for evaluating how effectively a company is able to generate returns on the investment it receives from its shareholders. Simply put, it measures a company’s profitability relative to shareholders’ equity.
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How to calculate return on equity
of Formula for Return on Equity teeth:
Return on Equity = Net Income (from Continuing Operations) ÷ Shareholders’ Equity
So, based on the above formula, Sanmina’s ROE would be:
14% = US$256 million ÷ US$1.9 billion (based on last 12 months to October 2022).
“Return” refers to the company’s earnings for the last year. So for $1 worth of shareholders’ equity, the company made $0.14 in profit.
What does ROE have to do with revenue growth?
So far we have learned that ROE is a measure of a company’s profitability. Next, the company should assess how much of its earnings will be reinvested or “retained” for future growth. This will give you an idea about the company’s growth potential. Assuming all else remains the same, higher ROE and profit margins will necessarily lead to higher growth for a company compared to a company that does not have these characteristics.
Sanmina revenue growth and 14% ROE
First, Sanmina’s ROE looks acceptable. We also found that his ROE for the average industry was similar to his 14% when compared to the industry. This probably explains, among other factors, Sanmina’s massive 41% net profit growth over the past five years. We believe there are other aspects that are also having a positive impact on the company’s revenue growth. and so on – maintenance of high profitability or proper efficient management.
We then compared Sanmina’s net profit growth to the industry and found that the company grew faster than the industry, which grew 18% over the same period.
Earnings growth is an important metric to consider when evaluating stocks. It is important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). That way, you’ll know if your stock is headed for clear blue waters, or if wet waters await. One good indicator of expected earnings growth is the P/E ratio. This determines the price the market is willing to pay for a stock based on its earnings prospects.so you might want to See if Sanmina is trading at a high or low P/E relative to the industry.
Is Sanmina reinvesting profits efficiently?
Sanmina does not pay dividends to shareholders, so the company reinvests all of its profits back into the business. This may be driving the high revenue growth mentioned earlier.
overview
Overall, I’m pretty happy with Sammina’s performance. I especially like that the company has reinvested heavily in their business and is delivering a high rate of return. Not surprisingly, this translates into impressive profit growth. As such, the company is expected to see slower earnings growth in the future, according to the latest analyst forecasts study. Are these analyst expectations based on broader industry expectations or company fundamentals? Click here to go to our analyst’s predictions page for the company.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …
