WiseTech Global Limited's (ASX:WTC) Stock Been Rising: Are Strong Financials Guiding The Market?

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

Thu, Feb 6, 2025, 2:59 PM 4 min read

WiseTech Global's (ASX:WTC) stock is up by 3.0% over the past week. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on WiseTech Global's ROE.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

Check out our latest analysis for WiseTech Global

How To Calculate Return On Equity?

ROE 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 WiseTech Global is:

12% = AU$263m ÷ AU$2.2b (Based on the trailing twelve months to June 2024).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each A$1 of shareholders' capital it has, the company made A$0.12 in profit.

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. 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.

WiseTech Global's Earnings Growth And 12% ROE

To begin with, WiseTech Global seems to have a respectable ROE. Further, the company's ROE compares quite favorably to the industry average of 8.0%. This probably laid the ground for WiseTech Global's significant 21% net income growth seen over the past five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared WiseTech Global's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 21% in the same period.

past-earnings-growth — ASX:WTC Past Earnings Growth February 6th 2025

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. Doing so will help them establish if the stock's future looks promising or ominous. Is WiseTech Global fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is WiseTech Global Efficiently Re-investing Its Profits?

WiseTech Global's ' three-year median payout ratio is on the lower side at 20% implying that it is retaining a higher percentage (80%) 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.

Moreover, WiseTech Global is determined to keep sharing its profits with shareholders which we infer from its long history of eight years of paying a dividend. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 20%. Regardless, the future ROE for WiseTech Global is predicted to rise to 21% despite there being not much change expected in its payout ratio.

Summary

On the whole, we feel that WiseTech Global's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. The latest industry analyst forecasts show that the company is expected to maintain its current growth rate. 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.