Stock Analysis

Are Robust Financials Driving The Recent Rally In John B. Sanfilippo & Son, Inc.'s (NASDAQ:JBSS) Stock?

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NasdaqGS:JBSS
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Most readers would already be aware that John B. Sanfilippo & Son's (NASDAQ:JBSS) stock increased significantly by 17% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to John B. Sanfilippo & Son's ROE today.

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. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

Check out our latest analysis for John B. Sanfilippo & Son

How Is ROE Calculated?

ROE 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 John B. Sanfilippo & Son is:

23% = US$56m ÷ US$244m (Based on the trailing twelve months to December 2020).

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 $0.23.

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

A Side By Side comparison of John B. Sanfilippo & Son's Earnings Growth And 23% ROE

Firstly, we acknowledge that John B. Sanfilippo & Son has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 9.6% which is quite remarkable. This probably laid the groundwork for John B. Sanfilippo & Son's moderate 12% net income growth seen over the past five years.

As a next step, we compared John B. Sanfilippo & Son'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 0.4%.

past-earnings-growth
NasdaqGS:JBSS Past Earnings Growth February 10th 2021

Earnings growth is a huge factor in stock valuation. 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. Is John B. Sanfilippo & Son fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is John B. Sanfilippo & Son Using Its Retained Earnings Effectively?

In John B. Sanfilippo & Son's case, its respectable earnings growth can probably be explained by its low three-year median payout ratio of 17% (or a retention ratio of 83%), which suggests that the company is investing most of its profits to grow its business.

Besides, John B. Sanfilippo & Son has been paying dividends over a period of seven years. This shows that the company is committed to sharing profits with its shareholders.

Summary

Overall, we are quite pleased with John B. Sanfilippo & Son's 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 sizeable growth in its earnings. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. 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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What are the risks and opportunities for John B. Sanfilippo & Son?

John B. Sanfilippo & Son, Inc., through its subsidiary, JBSS Ventures, LLC, processes and distributes tree nuts and peanuts in the United States.

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Rewards

  • Price-To-Earnings ratio (16.2x) is below the Food industry average (17.9x)

Risks

  • Significant insider selling over the past 3 months

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