Can Mixed Fundamentals Have A Negative Impact on Biglari Holdings Inc. (NYSE:BH.A) Current Share Price Momentum?

Explore Biglari Holdings's Fair Values from the Community and select yours

Biglari Holdings' (NYSE:BH.A) stock is up by a considerable 17% over the past three months. However, we wonder if the company's inconsistent financials would have any adverse impact on the current share price momentum. Specifically, we decided to study Biglari Holdings' ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Biglari Holdings is:

6.7% = US$40m ÷ US$589m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.07 in profit.

Check out our latest analysis for Biglari Holdings

Why Is ROE Important For 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 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.

A Side By Side comparison of Biglari Holdings' Earnings Growth And 6.7% ROE

On the face of it, Biglari Holdings' ROE is not much to talk about. Next, when compared to the average industry ROE of 17%, the company's ROE leaves us feeling even less enthusiastic. Hence, the flat earnings seen by Biglari Holdings over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that Biglari Holdings' reported growth was lower than the industry growth of 31% over the last few years, which is not something we like to see.

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). Doing so will help them establish if the stock's future looks promising or ominous. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Biglari Holdings is trading on a high P/E or a low P/E, relative to its industry.

Is Biglari Holdings Using Its Retained Earnings Effectively?

Biglari Holdings doesn't pay any regular dividends, which means that it is retaining all of its earnings. This makes us question why the company is retaining so much of its profits and still generating almost no growth? So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.

Conclusion

Overall, we have mixed feelings about Biglari Holdings. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into Biglari Holdings' past profit growth, check out this visualization of past earnings, revenue and cash flows.

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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.