Declining Stock and Solid Fundamentals: Is The Market Wrong About Warrior Met Coal, Inc. (NYSE:HCC)?

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

Fri, Mar 14, 2025, 8:09 AM 4 min read

It is hard to get excited after looking at Warrior Met Coal's (NYSE:HCC) recent performance, when its stock has declined 22% over the past three months. 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 Warrior Met Coal's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

See our latest analysis for Warrior Met Coal

How To 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 Warrior Met Coal is:

12% = US$251m ÷ US$2.1b (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 $0.12 in profit.

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. 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.

Warrior Met Coal's Earnings Growth And 12% ROE

To begin with, Warrior Met Coal seems to have a respectable ROE. And on comparing with the industry, we found that the the average industry ROE is similar at 11%. Consequently, this likely laid the ground for the impressive net income growth of 29% seen over the past five years by Warrior Met Coal. We believe that there might also be other aspects that are positively influencing the company's earnings growth. For example, it is possible that the company's management has made some good strategic decisions, or that the company has a low payout ratio.

Next, on comparing with the industry net income growth, we found that Warrior Met Coal's growth is quite high when compared to the industry average growth of 15% in the same period, which is great to see.

past-earnings-growth — NYSE:HCC Past Earnings Growth March 14th 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. 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 Warrior Met Coal is trading on a high P/E or a low P/E, relative to its industry.

Is Warrior Met Coal Using Its Retained Earnings Effectively?

Warrior Met Coal has a really low three-year median payout ratio of 3.1%, meaning that it has the remaining 97% left over to reinvest into its business. So it looks like Warrior Met Coal is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Additionally, Warrior Met Coal has paid dividends over a period of eight years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company's future payout ratio is expected to rise to 4.3% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Summary

In total, we are pretty happy with Warrior Met Coal's performance. Specifically, we like that the company is reinvesting a huge chunk of its profits at a high rate of return. This of course has caused the company to see substantial growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. 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.