Stock Analysis

Is Johnson Outdoors Inc.'s (NASDAQ:JOUT) Latest Stock Performance A Reflection Of Its Financial Health?

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NasdaqGS:JOUT
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Johnson Outdoors (NASDAQ:JOUT) has had a great run on the share market with its stock up by a significant 47% over the last three months. 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. Specifically, we decided to study Johnson Outdoors' ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Johnson Outdoors

How Is ROE Calculated?

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 Johnson Outdoors is:

17% = US$69m ÷ US$399m (Based on the trailing twelve months to January 2021).

The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.17.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Johnson Outdoors' Earnings Growth And 17% ROE

To begin with, Johnson Outdoors seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 17%. Consequently, this likely laid the ground for the impressive net income growth of 25% seen over the past five years by Johnson Outdoors. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Johnson Outdoors' growth is quite high when compared to the industry average growth of 7.4% in the same period, which is great to see.

past-earnings-growth
NasdaqGS:JOUT Past Earnings Growth February 15th 2021

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. If you're wondering about Johnson Outdoors''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Johnson Outdoors Using Its Retained Earnings Effectively?

Johnson Outdoors' ' three-year median payout ratio is on the lower side at 12% implying that it is retaining a higher percentage (88%) of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Besides, Johnson Outdoors has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we feel that Johnson Outdoors' performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. 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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About NasdaqGS:JOUT

Johnson Outdoors

Johnson Outdoors Inc. designs, manufactures, and markets seasonal and outdoor recreational products for fishing worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth3
Past Performance1
Financial Health6
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

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