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Corcept Therapeutics (NASDAQ:CORT) has had a great run on the share market with its stock up by a significant 26% over the last month. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to Corcept Therapeutics' 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 short, ROE shows the profit each dollar generates with respect to its shareholder investments.
See our latest analysis for Corcept Therapeutics
How Do You 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 Corcept Therapeutics is:
27% = US$112m ÷ US$408m (Based on the trailing twelve months to March 2022).
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 $0.27 in profit.
What Has ROE Got To Do With Earnings Growth?
We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of Corcept Therapeutics' Earnings Growth And 27% ROE
First thing first, we like that Corcept Therapeutics has an impressive ROE. Secondly, even when compared to the industry average of 18% the company's ROE is quite impressive. Probably as a result of this, Corcept Therapeutics was able to see a decent net income growth of 9.2% over the last five years.
As a next step, we compared Corcept Therapeutics' net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 6.1%.
Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Corcept Therapeutics''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.