Gold Fields Limited's (JSE:GFI) Stock Is Going Strong: Is the Market Following Fundamentals?

Gold Fields' (JSE:GFI) stock is up by a considerable 61% over the past three months. 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 Gold Fields' 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.

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How To 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 Gold Fields is:

31% = US$1.9b ÷ US$6.2b (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each ZAR1 of shareholders' capital it has, the company made ZAR0.31 in profit.

Check out our latest analysis for Gold Fields

Why Is ROE Important For Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

A Side By Side comparison of Gold Fields' Earnings Growth And 31% ROE

First thing first, we like that Gold Fields has an impressive ROE. Secondly, even when compared to the industry average of 4.3% the company's ROE is quite impressive. This probably laid the groundwork for Gold Fields' moderate 17% net income growth seen over the past five years.

As a next step, we compared Gold Fields' 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 4.5%.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. 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. 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 Gold Fields is trading on a high P/E or a low P/E, relative to its industry.

Is Gold Fields Using Its Retained Earnings Effectively?

With a three-year median payout ratio of 47% (implying that the company retains 53% of its profits), it seems that Gold Fields is reinvesting efficiently in a way that it sees respectable amount growth in its earnings and pays a dividend that's well covered.

Besides, Gold Fields has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 41%. Still, forecasts suggest that Gold Fields' future ROE will rise to 40% even though the the company's payout ratio is not expected to change by much.

Summary

On the whole, we feel that Gold Fields' 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. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.