Rexford Industrial Realty, Inc. (NYSE:REXR) Stock's Been Sliding But Fundamentals Look Decent: Will The Market Correct The Share Price In The Future?

By
Simply Wall St
Published
May 08, 2022
NYSE:REXR
Source: Shutterstock

It is hard to get excited after looking at Rexford Industrial Realty's (NYSE:REXR) recent performance, when its stock has declined 8.3% over the past week. 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. Specifically, we decided to study Rexford Industrial Realty's 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Rexford Industrial Realty

How To 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 Rexford Industrial Realty is:

2.9% = US$155m ÷ US$5.4b (Based on the trailing twelve months to March 2022).

The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.03.

Why Is ROE Important For 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. 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 Rexford Industrial Realty's Earnings Growth And 2.9% ROE

As you can see, Rexford Industrial Realty's ROE looks pretty weak. Even compared to the average industry ROE of 6.5%, the company's ROE is quite dismal. In spite of this, Rexford Industrial Realty was able to grow its net income considerably, at a rate of 30% in the last five years. We believe that there might be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

We then compared Rexford Industrial Realty'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 11% in the same period.

past-earnings-growth
NYSE:REXR Past Earnings Growth May 8th 2022

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). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is REXR worth today? The intrinsic value infographic in our free research report helps visualize whether REXR is currently mispriced by the market.

Is Rexford Industrial Realty Using Its Retained Earnings Effectively?

Rexford Industrial Realty seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 61%, meaning the company retains only 39% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings significantly, as we saw above.

Moreover, Rexford Industrial Realty is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 63% of its profits over the next three years. Therefore, the company's future ROE is also not expected to change by much with analysts predicting an ROE of 2.8%.

Summary

Overall, we feel that Rexford Industrial Realty certainly does have some positive factors to consider. While no doubt its earnings growth is pretty substantial, we do feel that the reinvestment rate is pretty low, meaning, the earnings growth number could have been significantly higher had the company been retaining more of its profits. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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