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It is hard to get excited after looking at Broadstone Net Lease's (NYSE:BNL) recent performance, when its stock has declined 6.1% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. In this article, we decided to focus on Broadstone Net Lease's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
View our latest analysis for Broadstone Net Lease
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Broadstone Net Lease is:
5.9% = US$193m ÷ US$3.3b (Based on the trailing twelve months to September 2023).
The 'return' is the income the business earned over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.06 in profit.
What Has ROE Got To Do With Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Broadstone Net Lease's Earnings Growth And 5.9% ROE
When you first look at it, Broadstone Net Lease's ROE doesn't look that attractive. Yet, a closer study shows that the company's ROE is similar to the industry average of 5.4%. Particularly, the exceptional 21% net income growth seen by Broadstone Net Lease over the past five years is pretty remarkable. Given the slightly low ROE, it is likely that there could be some other aspects that are driving this growth. Such as - high earnings retention or an efficient management in place.
As a next step, we compared Broadstone Net Lease's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 18% in the same period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is BNL worth today? The intrinsic value infographic in our free research report helps visualize whether BNL is currently mispriced by the market.