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Is The Market Rewarding CCC Intelligent Solutions Holdings Inc. (NASDAQ:CCCS) With A Negative Sentiment As A Result Of Its Mixed Fundamentals?
With its stock down 7.1% over the past month, it is easy to disregard CCC Intelligent Solutions Holdings (NASDAQ:CCCS). It is possible that the markets have ignored the company's differing financials and decided to lean-in to the negative sentiment. Stock prices are usually driven by a company’s financial performance over the long term, and therefore we decided to pay more attention to the company's financial performance. In this article, we decided to focus on CCC Intelligent Solutions Holdings' ROE.
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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.
Check out our latest analysis for CCC Intelligent Solutions Holdings
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 CCC Intelligent Solutions Holdings is:
1.9% = US$38m ÷ US$2.1b (Based on the trailing twelve months to December 2022).
The 'return' is the profit over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.02 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. 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.
CCC Intelligent Solutions Holdings' Earnings Growth And 1.9% ROE
As you can see, CCC Intelligent Solutions Holdings' ROE looks pretty weak. Even compared to the average industry ROE of 12%, the company's ROE is quite dismal. As a result, CCC Intelligent Solutions Holdings' flat earnings over the past five years doesn't come as a surprise given its lower ROE.
As a next step, we compared CCC Intelligent Solutions Holdings' net income growth with the industry and discovered that the industry saw an average growth of 21% in the same period.
Earnings growth is an important metric to consider when valuing a stock. 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 CCCS worth today? The intrinsic value infographic in our free research report helps visualize whether CCCS is currently mispriced by the market.
Is CCC Intelligent Solutions Holdings Using Its Retained Earnings Effectively?
CCC Intelligent Solutions Holdings doesn't pay any dividend, meaning that potentially all of its profits are being reinvested in the business. However, this doesn't explain why the company hasn't seen any growth. So there might be other factors at play here which could potentially be hampering growth. For example, the business has faced some headwinds.
In total, we're a bit ambivalent about CCC Intelligent Solutions Holdings' performance. While the company does have a high rate of reinvestment, the low ROE means that all that reinvestment is not reaping any benefit to its investors, and moreover, its having a negative impact on the earnings growth. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Valuation is complex, but we're helping make it simple.
Find out whether CCC Intelligent Solutions Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
CCC Intelligent Solutions Holdings
CCC Intelligent Solutions Holdings Inc. provides cloud, mobile, AI, telematics, hyperscale technologies, and applications for the property and casualty insurance economy.
Acceptable track record with moderate growth potential.