The New York Times (NYSE:NYT) stock is up a whopping 13% over the past three months. Given the company’s impressive performance, we decided to take a closer look at its financial metrics, as a company’s long-term financial health typically drives market results. Today we will be paying special attention to the ROE of the New York Times.
Return on equity, or ROE, is a test of how effectively a company is increasing its value and managing investors’ money. In other words, it shows the company’s success in turning shareholders’ investments into profits.
Check out our latest analysis for The New York Times
How do you calculate return on equity?
The ROE can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) ÷ Equity
So, based on the formula above, the ROE for The New York Times is:
11% = $173M ÷ $1.5B (based on trailing 12 months to September 2022).
“Yield” refers to a company’s profits over the past year. This means that for every $1 invested by its shareholders, the company earns $0.11 in profit.
What is the relationship between ROE and earnings growth?
We have already established that ROE serves as an efficient profitable measure of a company’s future profits. Based on how much of its profits the company chooses to reinvest, or “retain,” we are then able to assess a company’s future ability to generate profits. Assuming all else being equal, companies that demonstrate both higher return on equity and higher earnings retention tend to be those that exhibit a higher growth rate than companies that do not share the same characteristics.
New York Times earnings growth and 11% ROE
First of all, the New York Times ROE looks acceptable. And comparing it to the industry, we found that the average industry ROE is similar at 12%. Consequently, this likely laid the groundwork for the impressive 26% net income growth recorded by The New York Times over the past five years. We assume that other factors could also play a role here. Such as – a high accumulation of profits or efficient management.
Next, when we compare the industry’s net income growth, we find that the New York Times’ growth is pretty steep compared to the industry’s average 1.4% growth over the same period, which is great to see.
Earnings growth is an important factor in stock valuation. It’s important for an investor to know whether the market has priced in the company’s expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. Has the market priced in the future prospects for NYT? You can find out in our latest Intrinsic Value infographic research report.
Does The New York Times Use Its Retained Earnings Effectively?
The New York Times has a three-year median payout ratio of 27% (while keeping 73% of its earnings), which is neither too low nor too high. This suggests the dividend is well-covered, and given the high growth mentioned above, it looks like the New York Times is efficiently reinvesting its earnings.
Additionally, The New York Times has paid dividends over a nine-year period, meaning the company is pretty serious about sharing its profits with shareholders. Our latest analyst data shows that the company’s future payout ratio is expected to be around 27% over the next three years. As a result, The New York Times’ ROE will not change significantly either, which is what we inferred from the analyst’s estimate of 11% for future ROE.
Overall, we’re pretty happy with the performance of The New York Times. In particular, it’s great to see that the company has invested heavily in its business and has resulted in significant earnings growth along with a high rate of return. Against this backdrop, the latest forecasts from industry analysts indicate that the company’s earnings growth is likely to slow. To learn more about the company’s future earnings growth projections, take a look for free Report on analyst forecasts for the company to learn more.
What opportunities and risks are there for New York Times?
Trading 41% below our fair value estimate
Revenue is expected to grow 8.46% per year
Profit grew 8.2% over the past year
Significant insider selling in the last 3 months
View all risks and rewards
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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.