Kraken Robotics Inc.’s (CVE:PNG) Stock Has Been Sliding But Fundamentals Look Strong: Is The Market Wrong?
Kraken Robotics (CVE:PNG) has had a rough three months with its share price down 7.6%. However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Kraken Robotics’ 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Kraken Robotics
How Is ROE Calculated?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Kraken Robotics is:
26% = CA$9.1m ÷ CA$35m (Based on the trailing twelve months to March 2024).
The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every CA$1 worth of equity, the company was able to earn CA$0.26 in profit.
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. 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.
Kraken Robotics’ Earnings Growth And 26% ROE
To begin with, Kraken Robotics has a pretty high ROE which is interesting. Additionally, the company’s ROE is higher compared to the industry average of 10% which is quite remarkable. As a result, Kraken Robotics’ exceptional 30% net income growth seen over the past five years, doesn’t come as a surprise.
We then compared Kraken Robotics’ 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 16% in the same 5-year period.
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. Is Kraken Robotics fairly valued compared to other companies? These 3 valuation measures might help you decide.
Is Kraken Robotics Making Efficient Use Of Its Profits?
Given that Kraken Robotics doesn’t pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.
Summary
Overall, we are quite pleased with Kraken Robotics’ performance. 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. We also studied the latest analyst forecasts and found that the company’s earnings growth is expected be similar to its current growth rate. 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. 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.
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