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Oddity Tech (NASDAQ:ODD) has had a great run on the share market with its stock up by a significant 12% over the last month. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Oddity Tech'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for Oddity Tech
How Is ROE Calculated?
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 Oddity Tech is:
36% = US$101m ÷ US$282m (Based on the trailing twelve months to December 2024).
The 'return' is the profit over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.36.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.
Oddity Tech's Earnings Growth And 36% ROE
To begin with, Oddity Tech has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 8.9% which is quite remarkable. Under the circumstances, Oddity Tech's considerable five year net income growth of 45% was to be expected.
As a next step, we compared Oddity Tech's 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 9.2%.
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. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ODD fairly valued? This infographic on the company's intrinsic value has everything you need to know.