Is Molson Coors Beverage Company's (NYSE:TAP) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

Most readers would already be aware that Molson Coors Beverage's (NYSE:TAP) stock increased significantly by 12% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to study its financial indicators more closely to see if they had a hand to play in the recent price move. In this article, we decided to focus on Molson Coors Beverage's ROE.

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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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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 Molson Coors Beverage is:

8.6% = US$1.2b ÷ US$13b (Based on the trailing twelve months to December 2024).

The 'return' refers to a company's earnings over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.09.

View our latest analysis for Molson Coors Beverage

What Is The Relationship Between ROE And 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.

Molson Coors Beverage's Earnings Growth And 8.6% ROE

At first glance, Molson Coors Beverage's ROE doesn't look very promising. Next, when compared to the average industry ROE of 19%, the company's ROE leaves us feeling even less enthusiastic. However, we we're pleasantly surprised to see that Molson Coors Beverage grew its net income at a significant rate of 40% in the last five years. We reckon that there could be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

We then compared Molson Coors Beverage's net income growth with the industry and we're pleased to see that the company's growth figure is higher when compared with the industry which has a growth rate of 12% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is Molson Coors Beverage fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Molson Coors Beverage Using Its Retained Earnings Effectively?

The three-year median payout ratio for Molson Coors Beverage is 33%, which is moderately low. The company is retaining the remaining 67%. This suggests that its dividend is well covered, and given the high growth we discussed above, it looks like Molson Coors Beverage is reinvesting its earnings efficiently.

Moreover, Molson Coors Beverage is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 29%. Accordingly, forecasts suggest that Molson Coors Beverage's future ROE will be 9.1% which is again, similar to the current ROE.

Conclusion

In total, it does look like Molson Coors Beverage has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.

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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.