Stock Analysis

Rogers Corporation (NYSE:ROG) Is Going Strong But Fundamentals Appear To Be Mixed : Is There A Clear Direction For The Stock?

NYSE:ROG
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Rogers (NYSE:ROG) has had a great run on the share market with its stock up by a significant 53% over the last three months. However, we decided to pay attention to the company's fundamentals which don't appear to give a clear sign about the company's financial health. Particularly, we will be paying attention to Rogers' 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 Rogers

How Do You Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Rogers is:

0.6% = US$6.0m ÷ US$987m (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.01 in profit.

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 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.

Rogers' Earnings Growth And 0.6% ROE

As you can see, Rogers' ROE looks pretty weak. Not just that, even compared to the industry average of 9.7%, the company's ROE is entirely unremarkable. Therefore, Rogers' flat earnings over the past five years can possibly be explained by the low ROE amongst other factors.

We then compared Rogers' net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 10% in the same period, which is a bit concerning.

past-earnings-growth
NYSE:ROG Past Earnings Growth January 4th 2021

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Is Rogers fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Rogers Using Its Retained Earnings Effectively?

Summary

On the whole, we feel that the performance shown by Rogers can be open to many interpretations. While the company does have a high rate of profit retention, its low rate of return is probably hampering its earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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. 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.
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