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Most readers would already be aware that Tidewater's (NYSE:TDW) stock increased significantly by 30% over the past 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. Specifically, we decided to study Tidewater's ROE in this article.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.
How To Calculate Return On Equity?
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Tidewater is:
16% = US$175m ÷ US$1.1b (Based on the trailing twelve months to March 2025).
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 $0.16.
Check out our latest analysis for Tidewater
What Is The Relationship Between ROE And 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.
Tidewater's Earnings Growth And 16% ROE
To begin with, Tidewater seems to have a respectable ROE. On comparing with the average industry ROE of 13% the company's ROE looks pretty remarkable. Probably as a result of this, Tidewater was able to see an impressive net income growth of 70% over the last five years. We reckon that there could also be other factors at play here. Such as - high earnings retention or an efficient management in place.
We then performed a comparison between Tidewater's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 58% in the same 5-year period.
Earnings growth is a huge factor in stock valuation. 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 Tidewater fairly valued compared to other companies? These 3 valuation measures might help you decide.