Are Hudbay Minerals Inc.'s (TSE:HBM) Fundamentals Good Enough to Warrant Buying Given The Stock's Recent Weakness?

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

Tue, Apr 8, 2025, 9:33 AM 4 min read

With its stock down 27% over the past three months, it is easy to disregard Hudbay Minerals (TSE:HBM). 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 Hudbay Minerals' 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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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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 Hudbay Minerals is:

2.6% = US$68m ÷ US$2.6b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.03.

Check out our latest analysis for Hudbay Minerals

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. 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.

Hudbay Minerals' Earnings Growth And 2.6% ROE

It is hard to argue that Hudbay Minerals' ROE is much good in and of itself. Not just that, even compared to the industry average of 10.0%, the company's ROE is entirely unremarkable. However, we we're pleasantly surprised to see that Hudbay Minerals grew its net income at a significant rate of 66% in the last five years. We believe that there might 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.

As a next step, we compared Hudbay Minerals' 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 21%.

past-earnings-growth — TSX:HBM Past Earnings Growth April 8th 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. Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about Hudbay Minerals''s valuation, check out this gauge of its price-to-earnings ratio , as compared to its industry.

Is Hudbay Minerals Using Its Retained Earnings Effectively?

Hudbay Minerals' three-year median payout ratio to shareholders is 6.1%, which is quite low. This implies that the company is retaining 94% of its profits. This suggests that the management is reinvesting most of the profits to grow the business as evidenced by the growth seen by the company.

Additionally, Hudbay Minerals has paid dividends over a period of at least ten 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 drop to 2.7% over the next three years. As a result, the expected drop in Hudbay Minerals' payout ratio explains the anticipated rise in the company's future ROE to 9.2%, over the same period.

Conclusion

In total, it does look like Hudbay Minerals has some positive aspects to its business. 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 growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.