Bloomsbury Publishing Plc's (LON:BMY) Recent Stock Performance Looks Decent- Can Strong Fundamentals Be the Reason?

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

Sun, Nov 10, 2024, 10:37 PM 4 min read

Bloomsbury Publishing's (LON:BMY) stock is up by 2.4% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Specifically, we decided to study Bloomsbury Publishing's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for Bloomsbury Publishing

How Is ROE Calculated?

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 Bloomsbury Publishing is:

19% = UK£38m ÷ UK£203m (Based on the trailing twelve months to August 2024).

The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every £1 worth of equity, the company was able to earn £0.19 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. 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.

Bloomsbury Publishing's Earnings Growth And 19% ROE

At first glance, Bloomsbury Publishing seems to have a decent ROE. On comparing with the average industry ROE of 10% the company's ROE looks pretty remarkable. This probably laid the ground for Bloomsbury Publishing's significant 25% net income growth seen over the past five years. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Bloomsbury Publishing's reported growth was lower than the industry growth of 32% over the last few years, which is not something we like to see.

past-earnings-growth — LSE:BMY Past Earnings Growth November 11th 2024

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is BMY worth today? The intrinsic value infographic in our free research report helps visualize whether BMY is currently mispriced by the market.

Is Bloomsbury Publishing Making Efficient Use Of Its Profits?

The three-year median payout ratio for Bloomsbury Publishing is 47%, which is moderately low. The company is retaining the remaining 53%. By the looks of it, the dividend is well covered and Bloomsbury Publishing is reinvesting its profits efficiently as evidenced by its exceptional growth which we discussed above.

Additionally, Bloomsbury Publishing has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 39% of its profits over the next three years. Regardless, Bloomsbury Publishing's ROE is speculated to decline to 15% despite there being no anticipated change in its payout ratio.

Conclusion

On the whole, we feel that Bloomsbury Publishing's performance has been quite good. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. As a result, the decent growth in its earnings is not surprising. 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 company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.