NorthWest Healthcare Properties Real Estate Investment Trust (TSE:NWH.UN) Stock Has Shown Weakness Lately But Financials Look Strong: Should Prospective Shareholders Make The Leap?
With its stock down 2.9% last month, it is easy to disregard NorthWest Healthcare Properties Real Estate Investment Trust (TSE: NWH.UN). But if you look carefully, you might find that their strong financial metrics could mean the stock could appreciate in value over the long term, as markets typically reward companies with good financial health. In particular, today we will consider the ROE of the NorthWest Healthcare Properties Real Estate Investment Trust.
Return on Equity, or ROE, is an important metric for assessing how efficiently a company’s management is using the company’s capital. In simpler terms, it measures a company’s profitability in relation to equity.
Check out our latest analysis for NorthWest Healthcare Properties Real Estate Investment Trust
How do you calculate the return on equity?
The return on equity can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for NorthWest Healthcare Properties Real Estate Investment Trust is:
16% = $ 488 million ÷ $ 3.1 billion (based on the last twelve months through June 2021).
“Return” refers to a company’s earnings over the past year. So that means that for every CA $ 1 of its shareholder’s investment, the company will make a profit of CA $ 0.16.
Why is ROE important to earnings growth?
So far we have learned that ROE is a measure of a company’s profitability. Depending on how much of these profits the company reinvests or “withholds” and how effectively this is done, we can then estimate a company’s earnings growth potential. Assuming everything else stays the same, the higher the rate of growth of a company compared to companies that do not necessarily have these characteristics, the higher the ROE and retained earnings.
Earnings growth and 16% ROE from NorthWest Healthcare Properties Real Estate Investment Trust
First off, NorthWest Healthcare Properties Real Estate Investment Trust appears to have a respectable ROE. In addition, the company’s ROE compares favorably to the industry average of 10.0%. This was likely the cornerstone of NorthWest Healthcare Properties Real Estate Investment Trust’s significant net income growth of 21% over the past five years. We believe that there could be other aspects that have a positive impact on the company’s earnings growth. For example, the company has a low payout ratio or is run efficiently.
As a next step, we compared the NorthWest Healthcare Properties Real Estate Investment Trust’s net income growth to that of the industry and we were pleased to find that the company’s growth was above the industry average of 16%.
TSX: NWH.UN Past Earnings Growth October 3, 2021
Earnings growth is an important metric to consider when evaluating a stock. The investor should try to figure out whether it is pricing in expected growth or decline in earnings, whatever the case. This helps him determine whether the future of the stock looks promising or ominous. Is NorthWest Healthcare Properties Real Estate Investment Trust fairly valued compared to other companies? These 3 benchmarks can help you make a decision.
Is NorthWest Healthcare Properties Real Estate Investment Trust Reinvesting Profits Efficiently?
NorthWest Healthcare Properties Real Estate Investment Trust has a very high average payout ratio of 81% over three years. This means that she only has 19% of her earnings left to reinvest in her business. However, it’s not uncommon for a REIT to have such a high payout ratio, largely due to legal requirements. Nevertheless, as we have seen above, the company’s earnings have increased significantly.
Additionally, NorthWest Healthcare Properties Real Estate Investment Trust has been paying dividends over a six-year period, which means the company is pretty serious about sharing its profits with shareholders. When examining the latest analyst consensus data, we found that the company is expected to pay off about 87% of its earnings over the next three years.
Overall, we are quite satisfied with the performance of NorthWest Healthcare Properties Real Estate Investment Trust. Above all, the high ROE, which contributed to the impressive growth in earnings. Although the company has only reinvested a small portion of its profits, it has still managed to increase its profits noticeably. However, as we studied current analyst estimates, we were concerned that while the company has increased its earnings in the past, analysts expect its earnings to shrink in the future. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to go to our analysts forecast page for the company.
This article from Simply Wall St is of a general nature. We only provide comments based on historical data and analyst projections using an unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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