Are Strong Financial Prospects Powering AECOM’s NYSE:ACM Stock’s Recent Gains?
Had a successful run on the stock market, with a strong 19% increase in stock price during the previous three months. We chose to investigate the company’s key performance indicators to determine whether they might be influencing the market because the market often pays attention to a company’s long-term fundamentals. We specifically chose to research AECOM’s ROE for this report.
A shareholder should take into account the return on equity (ROE), which indicates how well their money is being reinvested. Simply said, ROE displays the profit that each dollar makes relative to shareholder investments.
How Is Return On Equity Calculated?
The return on equity formula is as follows:
Net profit (from ongoing operations) minus shareholders’ equity equals return on equity.
As a result, using the calculation above, the ROE for AECOM is:
16% equals US$415m to US$2.6b (Based on the trailing twelve months to September 2022).
The annual profit is the “return.” This implies that the corporation makes $0.16 in profit for every $1 invested by its shareholders.
How Do ROE And Earnings Growth Relate to One Another?
As of now, we know that ROE is a gauge of a business’s profitability. The amount of profit the company reinvests, or “retains,” for future expansion must now be assessed in order to determine its growth potential. Organizations that both have a greater return on equity and a higher profit retention tend to have a better growth rate when compared to companies that don’t have the same traits, assuming everything else is equal.
Earnings Growth And 16% ROE For AECOM
Starting out, AECOM’s ROE appears to be satisfactory. The company’s ROE appears to be quite remarkable, especially when compared to the 9.1% industry average. This most likely served as the foundation for AECOM’s modest 7.9% annual net income growth over the previous five years.
Next, we compared AECOM’s net income growth to that of the sector, and we were unhappy to learn that the company’s growth was less than the sector’s average increase of 11% over the same time period.
To a large part, a company’s earnings growth serves as the foundation for assigning value to it. An investor should be aware of whether the market has factored in the company’s anticipated earnings growth (or decline). They can determine whether the stock’s future appears good or concerning by doing this. The P/E ratio, which establishes the price the market is ready to pay for a stock based on its earnings prospects, is one reliable predictor of anticipated earnings growth. As a result, you might wish to determine whether AECOM is trading at a high or low P/E compared to its industry.
Is AECOM Reinvesting Its Profits Effectively?
In the case of AECOM, its low three-year median payout ratio of 16% (or a retention ratio of 84%), which implies that the company is investing the majority of its profits to build its business, likely explains its respectable earnings growth.
AECOM has lately begun paying dividends in addition to experiencing an increase in earnings. It’s conceivable that the business wanted to win over its stockholders. We discovered that the company’s anticipated future payout ratio over the following three years is anticipated to remain constant at 16% based on the most recent analyst projections. Nevertheless, projections indicate that AECOM’s ROE will increase to 26% in the future, even if little change is anticipated in the payout ratio of the firm.
We are happy with AECOM’s performance overall. We particularly appreciate that the company is heavily and profitably reinvesting in its operations. As a result, it is hardly surprising that its earnings have grown somewhat. Having said that, we discovered that the company’s earnings are anticipated to increase after examining the most recent analyst projections. Check out this visualization of analyst estimates for the company to learn more about the most recent expectations for the company.
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Our articles are not meant to be financial advice; instead, we only offer analysis based on objective methods, historical data, and analyst forecasts. It doesn’t represent an advice to buy or sell any stock, and it doesn’t take into consideration your goals or financial position. We hope to provide you with long-term analysis that is driven by essential facts. Be aware that recent price-sensitive company announcements or high-quality information may not be taken into account in our analysis. No stock mentioned has any positions.