Is Bird Construction Inc.'s (TSE:BDT) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

Bird Construction's (TSE:BDT) stock is up by a considerable 17% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Bird Construction's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Bird Construction is:

23% = CA$100m ÷ CA$428m (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.23 in profit.

See our latest analysis for Bird Construction

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Bird Construction's Earnings Growth And 23% ROE

Firstly, we acknowledge that Bird Construction has a significantly high ROE. Second, a comparison with the average ROE reported by the industry of 17% also doesn't go unnoticed by us. As a result, Bird Construction's exceptional 27% net income growth seen over the past five years, doesn't come as a surprise.

As a next step, we compared Bird Construction'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 18%.

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. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Bird Construction's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Bird Construction Using Its Retained Earnings Effectively?

The three-year median payout ratio for Bird Construction is 37%, which is moderately low. The company is retaining the remaining 63%. By the looks of it, the dividend is well covered and Bird Construction is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Bird Construction has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 33%.

Summary

On the whole, we feel that Bird Construction's performance has been quite good. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. We also studied the latest analyst forecasts and found that the company's earnings growth is expected be similar to its current growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.