Should Weakness in Brookfield Asset Management Reinsurance Partners Ltd.'s (NYSE:BAMR) Stock Be Seen As A Sign That Market Will Correct The Share Price Given Decent Financials?

By
Simply Wall St
Published
May 18, 2022
NYSE:BAMR
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It is hard to get excited after looking at Brookfield Asset Management Reinsurance Partners' (NYSE:BAMR) recent performance, when its stock has declined 14% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. Particularly, we will be paying attention to Brookfield Asset Management Reinsurance Partners' ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

See our latest analysis for Brookfield Asset Management Reinsurance Partners

How Do You Calculate Return On Equity?

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 Brookfield Asset Management Reinsurance Partners is:

5.6% = US$81m ÷ US$1.4b (Based on the trailing twelve months to March 2022).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.06 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. 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. 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.

Brookfield Asset Management Reinsurance Partners' Earnings Growth And 5.6% ROE

On the face of it, Brookfield Asset Management Reinsurance Partners' ROE is not much to talk about. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 12% either. However, we we're pleasantly surprised to see that Brookfield Asset Management Reinsurance Partners grew its net income at a significant rate of 34% 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 Brookfield Asset Management Reinsurance Partners' 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 13% in the same period.

past-earnings-growth
NYSE:BAMR Past Earnings Growth May 18th 2022

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. Is Brookfield Asset Management Reinsurance Partners fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Brookfield Asset Management Reinsurance Partners Using Its Retained Earnings Effectively?

Given that Brookfield Asset Management Reinsurance Partners doesn't pay any dividend to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Summary

On the whole, we do feel that Brookfield Asset Management Reinsurance Partners has some positive attributes. 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.

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