CyberOptics Corporation (NASDAQ: CYBE) financial data is too obscure to relate to current stock price dynamics: what in store?
CyberOptics (NASDAQ: CYBE) stock has risen significantly by 59% in the past three months. But the company’s key financial metrics appear to differ across the board, leading us to question whether the current momentum in the company’s stock price can be sustained. In this article, we have decided to focus on CyberOptics’ ROE.
ROE or return on equity is a useful tool to assess how effectively a company can generate the returns on investment it has received from its shareholders. Simply put, it is used to assess a company’s profitability against its equity.
Check out our latest analysis for CyberOptics
How do you calculate return on equity?
the return on equity formula is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, CyberOptics’ ROE is:
9.4% = US $ 6.3 million Ã· US $ 67 million (based on the last twelve months to March 2021).
The âreturnâ is the amount earned after tax over the past twelve months. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.09.
What does ROE have to do with profit growth?
We have already established that ROE is an effective indicator of profit generation for a company’s future profits. We now need to assess how much profit the company is reinvesting or “holding back” for future growth, which then gives us an idea of ââthe growth potential of the company. Assuming everything else remains the same, the higher the ROE and profit retention, the higher the growth rate of a business compared to businesses that don’t necessarily have these characteristics.
9.4% profit growth and ROE from CyberOptics
At first glance, CyberOptics’ ROE isn’t much to say. A quick follow-up study shows that the company’s ROE also does not compare favorably to the industry average of 14%. Given the circumstances, the significant 12% drop in net income observed by CyberOptics over the past five years is not surprising. However, other factors can also lead to lower income. Such as – low profit retention or misallocation of capital.
However, when we compared CyberOptics’ growth with that of the industry, we found that even though the company’s profits declined, the industry experienced 16% profit growth over the same period. . It is quite worrying.
Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. If you’re wondering about CyberOptics’ valuation, check out this gauge of its price / earnings ratio, relative to its industry.
Is CyberOptics Efficiently Using Its Retained Earnings?
Overall, we have mixed feelings about CyberOptics. Although the company has a high rate of profit retention, its low rate of return is likely to hamper its profit growth. That said, we have studied the latest analysts’ forecasts and found that while the company has cut profits in the past, analysts expect its profits to rise in the future. Are the expectations of these analysts based on general industry expectations or on company fundamentals? Click here to go to our business analyst forecasts page.
When trading CyberOptics or any other investment, use the platform considered by many to be the gateway for professionals to the global market, Interactive Brokers. You get the cheapest * trading on stocks, options, futures, forex, bonds and funds from around the world from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.