Most readers will already know that Lifestyle Communities (ASX:LIC) shares are up a significant 5.7% over the past week. We wonder if and what role the company’s financials play in this price change, because a company’s long-term fundamentals generally dictate market outcomes. In this article we decided to focus on Lifestyle Communities DEER.
Return on equity or ROE is a key metric used to assess how effectively a company’s management is using the company’s capital. In other words, it reveals the company’s success in turning shareholder investments into profits.
Check out our latest analysis for Lifestyle Communities
THE formula for ROE East:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the formula above, the ROE for Lifestyle Communities is:
6.0% = AU$50 million ÷ AU$832 million (based on the trailing twelve months to June 2024).
The “yield” is the annual profit. Another way to look at it is that for every AU$1 of shareholders’ equity, the company was able to make AU$0.06 in profit.
So far, we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company reinvests or “retains” for future growth, which then gives us an idea of the company’s growth potential. Generally speaking, all else being equal, companies with high return on equity and profit retention have a higher growth rate than companies that do not share these attributes.
When you first look at it, Lifestyle Communities’ ROE doesn’t seem that attractive. However, its ROE is similar to the industry average of 6.3%, so we wouldn’t discount the company completely. That said, Lifestyle Communities posted modest net income growth of 8.9% over the past five years. Given the slightly low ROE, it’s likely that other aspects are driving this growth. Such as – high profit retention or effective management in place.
Then, comparing with the industry’s net income growth, we found that Lifestyle Communities’ growth is quite high compared to the industry’s average growth of 4.3% during the same period, which is great to see. see.
The basis on which to attach value to a company is, to a large extent, linked to its earnings growth. It is 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 heading towards clear blue waters or if swampy waters await them. A 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 outlook. So you might want to check if Lifestyle Communities is trading on a high P/E or a low P/Ein relation to its industry.