Declining Stock and Decent Financials: Is The Market Wrong About Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH)?

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

Wed, Apr 2, 2025, 4:37 AM 3 min read

Aurinia Pharmaceuticals (NASDAQ:AUPH) has had a rough three months with its share price down 10%. 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. Particularly, we will be paying attention to Aurinia Pharmaceuticals' ROE today.

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. Put another way, it reveals the company's success at turning shareholder investments into profits.

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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 Aurinia Pharmaceuticals is:

1.5% = US$5.8m ÷ US$377m (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every $1 worth of shareholders' equity, the company generated $0.02 in profit.

Check out our latest analysis for Aurinia Pharmaceuticals

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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 Aurinia Pharmaceuticals' Earnings Growth And 1.5% ROE

It is quite clear that Aurinia Pharmaceuticals' ROE is rather low. Not just that, even compared to the industry average of 15%, the company's ROE is entirely unremarkable. However, the moderate 19% net income growth seen by Aurinia Pharmaceuticals over the past five years is definitely a positive. Therefore, the growth in earnings could probably have been caused by other variables. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing Aurinia Pharmaceuticals' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 21% over the last few years.

past-earnings-growth — NasdaqGM:AUPH Past Earnings Growth April 2nd 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Aurinia Pharmaceuticals is trading on a high P/E or a low P/E, relative to its industry.

Is Aurinia Pharmaceuticals Using Its Retained Earnings Effectively?

Given that Aurinia Pharmaceuticals doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Conclusion

On the whole, we do feel that Aurinia Pharmaceuticals has some positive attributes. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. 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.