Markets

Is the market following Concentric’s solid fundamentals?

Most readers would already be aware that shares of Concentric ( NASDAQ:CNKSC ) are up a significant 14% over the past three months. Since the market usually pays for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they can influence the market. In this article, we have chosen to focus on Concentric’s ROE.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how effectively their capital is being reinvested. In other words, it is a profitability ratio that measures the rate of return on capital provided by the company’s shareholders.

Check out our latest analysis for Concentric

How to calculate return on capital?

The formula for ROE is:

Return on equity = net profit (from continuing operations) ÷ Shareholder’s equity

So, based on the formula above, the ROE for Concentric is:

17% = $455 million ÷ $2.6 billion (based on trailing twelve months to August 2022).

‘Yield’ refers to the company’s earnings over the past year. So this means that for every dollar invested by its shareholder, the company generates a profit of $0.17.

Why is ROE important to earnings growth?

We have already established that ROE serves as an effective profit-generating measure for a company’s future earnings. Based on how much of its profits the company chooses to reinvest or “retain,” we are then able to gauge the company’s future ability to generate profits. In general, other things being equal, firms with a high return on equity and retained earnings have a higher growth rate than firms that do not share these attributes.

Concentric’s earnings growth and ROE of 17%.

For starters, Concentric appears to have a respectable ROE. Further, the company’s ROE is similar to the industry average of 15%. This certainly adds some context to Concentric’s remarkable 41% net income growth seen over the past five years. We believe that there may be other aspects that positively influence the company’s earnings growth. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

Then, when compared to industry net income growth, we found that Concentric’s growth is quite high compared to the industry average growth of 15% over the same period, which is great to see.

past-earnings-growth
NasdaqGS: CNKSC Past Earnings Growth December 25, 2022

Earnings growth is a huge factor in stock valuation. It is important for an investor to know whether the market has determined the expected growth (or decline) of a company’s earnings. This then helps them determine whether stocks are set for a bright or bleak future. Is Concentric fairly valued compared to other companies? These 3 evaluation measures can help you decide.

Is Concentric effectively reinvesting its profits?

Concentric’s three-year median payout ratio to shareholders is 7.3%, which is quite low. This means that the company keeps 93% of its profits. This suggests that management is reinvesting most of the profits into business development, as evidenced by the growth the company is seeing.

While Concentric has been growing its earnings, it only recently started paying dividends, which likely means the company decided to impress new and existing shareholders with a dividend.

Conclusion

Overall, we are quite pleased with Concentric’s performance. We especially like that the company is reinvesting in its business with a high rate of return. Not surprisingly, this has led to impressive earnings growth. Additionally, the latest forecasts from industry analysts reveal that the company’s earnings growth is expected to slow. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to be taken to our analyst’s prediction page for the company.

What are the risks and opportunities for Concentric?

Concentric Corporation provides technology-based customer experience (CX) solutions worldwide.

See the full analysis

Awards

  • Price-to-earnings ratio (14.8k) is below the IT industry average (27.9k)

  • Earnings grew by 30.8% last year

Risks

See all risks and rewards

This Simply Wall St article 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 into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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