Is Wheaton Precious Metals Corp.'s (TSE:WPM) Recent Stock Performance Influenced By Its Fundamentals In Any Way?
In This Article:
Wheaton Precious Metals' (TSE:WPM) stock is up by a considerable 11% 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. In this article, we decided to focus on Wheaton Precious Metals' ROE.
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. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Check out our latest analysis for Wheaton Precious Metals
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 Wheaton Precious Metals is:
8.0% = US$571m ÷ US$7.2b (Based on the trailing twelve months to June 2024).
The 'return' is the yearly profit. One way to conceptualize this is that for each CA$1 of shareholders' capital it has, the company made CA$0.08 in profit.
What Has ROE Got To Do With 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Wheaton Precious Metals' Earnings Growth And 8.0% ROE
At first glance, Wheaton Precious Metals' ROE doesn't look very promising. Yet, a closer study shows that the company's ROE is similar to the industry average of 9.2%. Moreover, we are quite pleased to see that Wheaton Precious Metals' net income grew significantly at a rate of 23% over the last five years. Taking into consideration that the ROE is not particularly high, we reckon that there could also be other factors at play which could be influencing the company's growth. Such as - high earnings retention or an efficient management in place.
Next, on comparing Wheaton Precious Metals' net income growth with the industry, we found that the company's reported growth is similar to the industry average growth rate of 25% over the last few years.
