Most readers already know that Regeneron Pharmaceuticals (NASDAQ:REGN) stock has increased by 9.6% over the past three months. Given that the market rewards strong financials in the long run, I wonder if that will be the case this time as well. In particular, I would like to pay attention to Regeneron Pharmaceuticals' ROE today.
ROE or return on equity is a useful tool for evaluating how effectively a company can generate returns on the investment it receives from its shareholders. In other words, this reveals that the company has been successful in turning shareholder investments into profits.
See our latest analysis for Regeneron Pharmaceuticals.
How do I calculate return on equity?
ROE can be calculated using the following formula:
Return on equity = Net income (from continuing operations) ÷ Shareholders' equity
So, based on the above formula, Regeneron Pharmaceuticals' ROE is:
15% = USD 4 billion ÷ USD 26 billion (based on trailing 12 months to December 2023).
“Revenue” is the income a company has earned over the past year. This means that for every $1 of shareholders' equity, the company generated $0.15 in profit.
Why is ROE important for profit growth?
So far, we have learned that ROE is a measure of a company's profitability. Now we need to assess how much profit the company reinvests or “retains” for future growth, which gives us an idea about the company's growth potential. Assuming all else is equal, companies with both higher return on equity and higher profit retention typically have higher growth rates when compared to companies that don't have the same characteristics.
Regeneron Pharmaceuticals' revenue growth and ROE 15%
At first glance, Regeneron Pharmaceuticals appears to have a decent ROE. Also, when we compare it to its industry, we find that its industry has a similar average ROE of 17%. Several factors can likely explain Regeneron Pharmaceuticals' moderate growth of 16% over the past five years.
We then compared Regeneron Pharmaceuticals' net income growth with the industry and found that the company's reported growth is similar to the industry's average growth rate of 15% over the past few years.
The foundations that give a company value have a lot to do with its revenue growth. It's important for investors to know whether the market is pricing in a company's expected earnings growth (or decline). This can help you decide whether to position the stock for a bright or bleak future. Is REGN fairly valued? This infographic on the company's intrinsic value contains everything you need to know.
Is Regeneron Pharmaceuticals reinvesting its profits efficiently?
Regeneron Pharmaceuticals currently doesn't pay a dividend, which essentially means it reinvests all of its profits back into the business. This definitely contributes to the decent revenue growth rate discussed above.
conclusion
Overall, we're very pleased with Regeneron Pharmaceuticals' performance. In particular, we like that the company is reinvesting heavily in its business and has a high rate of return. Unsurprisingly, this led to impressive profit growth. With that said, the company's revenue growth is expected to slow, as predicted by current analyst forecasts. Are these analyst forecasts based on broader expectations for the industry, or are they based on the company's fundamentals? Click here to be taken to our analyst forecasts page for the company .
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
