Is Sandstorm Gold Ltd.'s (TSE:SSL) Recent Stock Performance Influenced By Its Fundamentals In Any Way?

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

Sat, Mar 22, 2025, 7:23 AM 4 min read

Most readers would already be aware that Sandstorm Gold's (TSE:SSL) stock increased significantly by 26% over the past three months. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. Specifically, we decided to study Sandstorm Gold's ROE in this article.

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.

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 Sandstorm Gold is:

1.1% = US$16m ÷ US$1.4b (Based on the trailing twelve months to December 2024).

The 'return' is the amount earned after tax over the last twelve months. That means that for every CA$1 worth of shareholders' equity, the company generated CA$0.01 in profit.

See our latest analysis for Sandstorm Gold

Why Is ROE Important For 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.

Sandstorm Gold's Earnings Growth And 1.1% ROE

It is quite clear that Sandstorm Gold's ROE is rather low. Not just that, even compared to the industry average of 10%, the company's ROE is entirely unremarkable. Sandstorm Gold was still able to see a decent net income growth of 15% over the past five years. Therefore, the growth in earnings could probably have been caused by other variables. Such as - high earnings retention or an efficient management in place.

We then compared Sandstorm Gold's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 21% in the same 5-year period, which is a bit concerning.

past-earnings-growth — TSX:SSL Past Earnings Growth March 22nd 2025

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Sandstorm Gold fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Sandstorm Gold Making Efficient Use Of Its Profits?

Sandstorm Gold has a healthy combination of a moderate three-year median payout ratio of 35% (or a retention ratio of 65%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.

Additionally, Sandstorm Gold has paid dividends over a period of three years which means that the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 29%. However, Sandstorm Gold's ROE is predicted to rise to 3.2% despite there being no anticipated change in its payout ratio.

Conclusion

In total, it does look like Sandstorm Gold has some positive aspects to its business. Specifically, its fairly high earnings growth number, which no doubt was backed by the company's high earnings retention. Still, the low ROE means that all that reinvestment is not reaping a lot of benefit to the investors. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.