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With its stock down 20% over the past three months, it is easy to disregard SiteOne Landscape Supply (NYSE:SITE). It seems that the market might have completely ignored the positive aspects of the company's fundamentals and decided to weigh-in more on the negative aspects. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. In this article, we decided to focus on SiteOne Landscape Supply's ROE.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
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How Do You 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 SiteOne Landscape Supply is:
7.8% = US$124m ÷ US$1.6b (Based on the trailing twelve months to March 2025).
The 'return' is the amount earned after tax over the last twelve months. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.08.
View our latest analysis for SiteOne Landscape Supply
What Has ROE Got To Do With 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.
SiteOne Landscape Supply's Earnings Growth And 7.8% ROE
At first glance, SiteOne Landscape Supply's ROE doesn't look very promising. A quick further study shows that the company's ROE doesn't compare favorably to the industry average of 15% either. Thus, the low net income growth of 4.0% seen by SiteOne Landscape Supply over the past five years could probably be the result of the low ROE.
As a next step, we compared SiteOne Landscape Supply's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 22% in the same period.
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. If you're wondering about SiteOne Landscape Supply's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.