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With its stock down 8.8% over the past three months, it is easy to disregard SIGA Technologies (NASDAQ:SIGA). However, stock prices are usually driven by a company’s financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to SIGA Technologies' ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
How To Calculate Return On Equity?
ROE 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 SIGA Technologies is:
27% = US$59m ÷ US$216m (Based on the trailing twelve months to December 2024).
The 'return' is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.27 in profit.
Check out our latest analysis for SIGA Technologies
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. 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.
A Side By Side comparison of SIGA Technologies' Earnings Growth And 27% ROE
Firstly, we acknowledge that SIGA Technologies has a significantly high ROE. Additionally, the company's ROE is higher compared to the industry average of 21% which is quite remarkable. Under the circumstances, SIGA Technologies' considerable five year net income growth of 23% was to be expected.
As a next step, we compared SIGA Technologies' 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 8.0%.
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 SIGA Technologies''s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.