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Is Qiagen N.V.'s (NYSE:QGEN) Recent Stock Performance Tethered To Its Strong Fundamentals?
Most readers would already be aware that Qiagen's (NYSE:QGEN) stock increased significantly by 17% over the past month. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. In this article, we decided to focus on Qiagen's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for Qiagen
How Is ROE Calculated?
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 Qiagen is:
15% = US$488m ÷ US$3.3b (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.15 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.
Qiagen's Earnings Growth And 15% ROE
To begin with, Qiagen seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 16%. This probably goes some way in explaining Qiagen's significant 46% net income growth over the past five years amongst other factors. However, there could also be other drivers behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.
As a next step, we compared Qiagen'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 34%.
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). 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 Qiagen is trading on a high P/E or a low P/E, relative to its industry.
Is Qiagen Efficiently Re-investing Its Profits?
Qiagen doesn't pay any dividend to its shareholders, meaning that the company has been reinvesting all of its profits into the business. This is likely what's driving the high earnings growth number discussed above.
Conclusion
On the whole, we feel that Qiagen's performance has been quite good. 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, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
What are the risks and opportunities for Qiagen?
QIAGEN N.V. offers sample to insight solutions that transform biological materials into molecular insights worldwide.
Rewards
Trading at 8.2% below our estimate of its fair value
Earnings are forecast to grow 6.82% per year
Earnings grew by 57.1% over the past year
Risks
No risks detected for QGEN from our risks checks.
Further research on
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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.
About NYSE:QGEN
Qiagen
QIAGEN N.V. offers sample to insight solutions that transform biological materials into molecular insights worldwide.
Solid track record with excellent balance sheet.
