Stock Analysis

Is Casey's General Stores, Inc.'s (NASDAQ:CASY) Stock's Recent Performance Being Led By Its Attractive Financial Prospects?

  •  Updated
NasdaqGS:CASY
Source: Shutterstock

Most readers would already be aware that Casey's General Stores' (NASDAQ:CASY) stock increased significantly by 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 Casey's General Stores' ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Casey's General Stores

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

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

So, based on the above formula, the ROE for Casey's General Stores is:

16% = US$264m ÷ US$1.6b (Based on the trailing twelve months to July 2020).

The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.16 in profit.

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. 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.

Casey's General Stores' Earnings Growth And 16% ROE

To start with, Casey's General Stores' ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 10.0%. However, for some reason, the higher returns aren't reflected in Casey's General Stores' meagre five year net income growth average of 4.7%. This is interesting as the high returns should mean that the company has the ability to generate high growth but for some reason, it hasn't been able to do so. Such a scenario is likely to take place when a company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

Next, on comparing Casey's General Stores' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 5.2% in the same period.

past-earnings-growth
NasdaqGS:CASY Past Earnings Growth September 9th 2020

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is CASY worth today? The intrinsic value infographic in our free research report helps visualize whether CASY is currently mispriced by the market.

Is Casey's General Stores Efficiently Re-investing Its Profits?

Casey's General Stores has a low three-year median payout ratio of 20% (meaning, the company keeps the remaining 80% of profits) which means that the company is retaining more of its earnings. However, the low earnings growth number doesn't reflect this as high growth usually follows high profit retention. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

In addition, Casey's General Stores has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 19%. Accordingly, forecasts suggest that Casey's General Stores' future ROE will be 13% which is again, similar to the current ROE.

Summary

In total, we are pretty happy with Casey's General Stores' 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 respectable growth in its earnings. 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. 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.

If you’re looking to trade Casey's General Stores, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


What are the risks and opportunities for Casey's General Stores?

Casey's General Stores, Inc., together with its subsidiaries, operates convenience stores under the Casey's and Casey’s General Store names.

View Full Analysis

Rewards

  • Trading at 35.7% below our estimate of its fair value

  • Earnings grew by 19.9% over the past year

Risks

  • Has a high level of debt

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report

Further research on
Casey's General Stores

ValuationFinancial HealthInsider TradingManagement Team

About NasdaqGS:CASY

Casey's General Stores

Casey's General Stores, Inc., together with its subsidiaries, operates convenience stores under the Casey's and Casey’s General Store names.

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 Growth0
Past Performance4
Financial Health3
Dividends0

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

Proven track record and fair value.