Is Atlas Air Worldwide Holdings, Inc.'s (NASDAQ:AAWW) Latest Stock Performance A Reflection Of Its Financial Health?

By
Simply Wall St
Published
March 16, 2022
NasdaqGS:AAWW
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Atlas Air Worldwide Holdings' (NASDAQ:AAWW) stock is up by a considerable 10% over the past month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. In this article, we decided to focus on Atlas Air Worldwide 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. Put another way, it reveals the company's success at turning shareholder investments into profits.

See our latest analysis for Atlas Air Worldwide Holdings

How Do You Calculate Return On Equity?

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 Atlas Air Worldwide Holdings is:

18% = US$493m ÷ US$2.8b (Based on the trailing twelve months to December 2021).

The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.18.

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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 Atlas Air Worldwide Holdings' Earnings Growth And 18% ROE

At first glance, Atlas Air Worldwide Holdings seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 18%. Consequently, this likely laid the ground for the decent growth of 17% seen over the past five years by Atlas Air Worldwide Holdings.

Next, on comparing with the industry net income growth, we found that Atlas Air Worldwide Holdings' growth is quite high when compared to the industry average growth of 13% in the same period, which is great to see.

past-earnings-growth
NasdaqGS:AAWW Past Earnings Growth March 16th 2022

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. If you're wondering about Atlas Air Worldwide Holdings''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Atlas Air Worldwide Holdings Making Efficient Use Of Its Profits?

Given that Atlas Air Worldwide Holdings 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

In total, we are pretty happy with Atlas Air Worldwide Holdings' performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. 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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