Is Acadian Timber Corp.'s (TSE:ADN) Recent Stock Performance Influenced By Its Financials In Any Way?

editorial-team@simplywallst.com (Simply Wall St)

Mon, May 26, 2025, 3:09 PM 4 min read

Most readers would already know that Acadian Timber's (TSE:ADN) stock increased by 4.0% over the past month. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Particularly, we will be paying attention to Acadian Timber's ROE today.

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

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How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Acadian Timber is:

5.7% = CA$19m ÷ CA$340m (Based on the trailing twelve months to March 2025).

The 'return' is the income the business earned over the last year. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.06 in profit.

View our latest analysis for Acadian Timber

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Acadian Timber's Earnings Growth And 5.7% ROE

At first glance, Acadian Timber's ROE doesn't look very promising. We then compared the company's ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 17%. Although, we can see that Acadian Timber saw a modest net income growth of 10% over the past five years. So, there might be other aspects that are positively influencing 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.

Next, on comparing Acadian Timber's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 8.7% over the last few years.

past-earnings-growth — TSX:ADN Past Earnings Growth May 26th 2025

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is ADN worth today? The intrinsic value infographic in our free research report helps visualize whether ADN is currently mispriced by the market.

Is Acadian Timber Efficiently Re-investing Its Profits?

The high three-year median payout ratio of 67% (or a retention ratio of 33%) for Acadian Timber suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Acadian Timber has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders.

Conclusion

On the whole, we do feel that Acadian Timber has some positive attributes. Namely, its high earnings growth. We do however feel that the earnings growth number could have been even higher, had the company been reinvesting more of its earnings and paid out less dividends. That being so, according to the latest industry analyst forecasts, the company's earnings are expected to shrink in the future. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.