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Tags: DuPont de Nemours, stock performance, financials, return on equity, ROE, profitability ratio, earnings growth, payout ratio, future outlook
DuPont de Nemours (NYSE:DD) has seen a 3.3% decline in its stock price over the past three months. However, it’s essential to consider the company’s financials, particularly its return on equity (ROE), which remains relatively respectable.
ROE is a key metric for evaluating a company’s ability to generate returns on shareholders’ investments. It reflects the profitability of the capital provided by shareholders.
Using the ROE formula:
Return on Equity = Net Profit (from continuing operations) รท Shareholders’ Equity
For DuPont de Nemours, the calculated ROE is 3.8%, based on a net profit of US$1.0 billion and shareholders’ equity of US$27 billion for the trailing twelve months ending in June 2023.
The ROE figure represents the income generated by the company in the last year for every $1 of shareholders’ equity, amounting to $0.04 in profit.
ROE is closely linked to a company’s future earnings growth, as it indicates how efficiently profits are reinvested. Higher ROE and profit retention usually suggest a higher growth rate.
However, DuPont de Nemours’ ROE of 3.8% appears relatively weak, especially when compared to the industry average of 14%. Despite this, the company has managed to grow its net income by 43% over the past five years. This growth might be influenced by other positive factors, such as a low payout ratio and efficient management.
Additionally, when comparing the company’s net income growth to the industry average, DuPont de Nemours outperforms the industry’s 14% growth.
The stock’s value is closely associated with its earnings growth, and investors need to determine whether the stock’s future outlook is already factored into its price. To do so, a study of the stock’s intrinsic value is required.
While DuPont de Nemours maintains a relatively high payout ratio of 61%, signifying that it returns 39% of its earnings to shareholders, this has not hampered the company’s growth. Furthermore, the company has a history of paying dividends for at least ten years. The future payout ratio is expected to decrease to 34% over the next three years, contributing to an anticipated rise in DuPont de Nemours’ ROE to 7.6%.
In conclusion, DuPont de Nemours exhibits positive attributes, particularly in terms of its earnings growth. Nevertheless, the company’s earnings growth might have been even higher with more reinvestment of profits and fewer dividends. Analyst forecasts indicate a potential slowdown in the company’s future earnings growth.
