Hecla Mining Company's (NYSE:HL) Has Been On A Rise But Financial Prospects Look Weak: Is The Stock Overpriced?

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

Mon, Mar 24, 2025, 5:40 AM 4 min read

Hecla Mining (NYSE:HL) has had a great run on the share market with its stock up by a significant 14% over the last three months. However, in this article, we decided to focus on its weak fundamentals, as long-term financial performance of a business is what ultimately dictates market outcomes. Specifically, we decided to study Hecla Mining's ROE in this article.

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.

How Is ROE Calculated?

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 Hecla Mining is:

1.8% = US$36m ÷ US$2.0b (Based on the trailing twelve months to December 2024).

The 'return' is the yearly profit. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.02 in profit.

See our latest analysis for Hecla Mining

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. 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

Hecla Mining's Earnings Growth And 1.8% ROE

It is hard to argue that Hecla Mining's ROE is much good in and of itself. Even when compared to the industry average of 11%, the ROE figure is pretty disappointing. As a result, Hecla Mining's flat earnings over the past five years doesn't come as a surprise given its lower ROE.

We then compared Hecla Mining's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 15% in the same 5-year period, which is a bit concerning.

past-earnings-growth — NYSE:HL Past Earnings Growth March 24th 2025

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. Is HL fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Hecla Mining Making Efficient Use Of Its Profits?

With a high LTM (or last twelve month) payout ratio of 66% (implying that the company keeps only 34% of its income) of its business to reinvest into its business), most of Hecla Mining's profits are being paid to shareholders, which explains the absence of growth in earnings.

In addition, Hecla Mining has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 19% over the next three years. The fact that the company's ROE is expected to rise to 7.5% over the same period is explained by the drop in the payout ratio.

Summary

On the whole, Hecla Mining's performance is quite a big let-down. As a result of its low ROE and lack of much reinvestment into the business, the company has seen a disappointing earnings growth rate. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. 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.