Are Broadstone Net Lease, Inc.'s (NYSE:BNL) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

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

Thu, Jan 30, 2025, 4:19 AM 4 min read

It is hard to get excited after looking at Broadstone Net Lease's (NYSE:BNL) recent performance, when its stock has declined 10% over the past three months. But if you pay close attention, you might find that its key financial indicators look quite decent, which could mean that the stock could potentially rise in the long-term given how markets usually reward more resilient long-term fundamentals. 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:

4.7% = US$148m ÷ US$3.1b (Based on the trailing twelve months to September 2024).

The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.05.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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.

Broadstone Net Lease's Earnings Growth And 4.7% ROE

When you first look at it, Broadstone Net Lease's ROE doesn't look that attractive. 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 6.2%. In spite of this, Broadstone Net Lease was able to grow its net income considerably, at a rate of 22% in the last five years. Therefore, there could be other reasons behind this growth. Such as - high earnings retention or an efficient management in place.

Next, on comparing Broadstone Net Lease's net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 19% over the last few years.

past-earnings-growth — NYSE:BNL Past Earnings Growth January 30th 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. If you're wondering about Broadstone Net Lease's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Broadstone Net Lease Making Efficient Use Of Its Profits?

Broadstone Net Lease seems to be paying out most of its income as dividends judging by its three-year median payout ratio of 66%, meaning the company retains only 34% of its income. However, this is typical for REITs as they are often required by law to distribute most of their earnings. In spite of this, the company was able to grow its earnings significantly, as we saw above.

Besides, Broadstone Net Lease has been paying dividends over a period of four years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 165% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Conclusion

On the whole, we do feel that Broadstone Net Lease 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. With that said, on studying the latest analyst forecasts, we found that while the company has seen growth in its past earnings, analysts expect its future earnings to shrink. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page 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.