Mainfreight Limited's (NZSE:MFT) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

Explore Mainfreight's Fair Values from the Community and select yours

It is hard to get excited after looking at Mainfreight's (NZSE:MFT) recent performance, when its stock has declined 7.9% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Mainfreight's ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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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 Mainfreight is:

14% = NZ$274m ÷ NZ$2.0b (Based on the trailing twelve months to March 2025).

The 'return' is the yearly profit. That means that for every NZ$1 worth of shareholders' equity, the company generated NZ$0.14 in profit.

View our latest analysis for Mainfreight

Why Is ROE Important For 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Mainfreight's Earnings Growth And 14% ROE

To begin with, Mainfreight seems to have a respectable ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. This certainly adds some context to Mainfreight's moderate 6.2% net income growth seen over the past five years.

We then compared Mainfreight's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 9.9% in the same 5-year period, which is a bit concerning.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is MFT fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Mainfreight Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 52% (or a retention ratio of 48%) for Mainfreight suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Additionally, Mainfreight 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. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 57% of its profits over the next three years. Accordingly, forecasts suggest that Mainfreight's future ROE will be 14% which is again, similar to the current ROE.

Summary

On the whole, we do feel that Mainfreight has some positive attributes. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.