Does Helios Technologies, Inc.’s (NASDAQ: HLIO) Latest Market Performance Reflect Its Financial Health?

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Helios Technologies (NASDAQ: HLIO) had a strong run in the equity market with its stock rising significantly 14% in the past three months. Since the market typically pays for a company’s long-term fundamentals, we decided to study the company’s KPIs to see if they could influence the market. In this article, we have decided to focus on the ROE of Helios Technologies.

Return on equity or ROE is an important factor for a shareholder to consider because it tells them how efficiently their capital is being reinvested. Simply put, it is used to assess a company’s profitability against its equity.

How do you calculate return on equity?

The return on equity formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

Thus, based on the above formula, the ROE for Helios Technologies is:

11% = US $ 72 million ÷ US $ 658 million (based on the last twelve months to July 2021).

The “return” is the amount earned after tax over the past twelve months. This means that for every dollar in shareholders’ equity, the company generated $ 0.11 in profit.

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 ​​the growth potential of the company. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.

A side-by-side comparison of Helios Technologies’ 11% profit growth and ROE

For starters, Helios Technologies’ ROE seems acceptable. Even compared to the industry average of 11%, the company’s ROE looks pretty decent. This probably partly explains Helios Technologies’ moderate 12% growth over the past five years, among other factors.

Then, comparing with the industry net income growth, we found that the growth of Helios Technologies is quite high compared to the industry average growth of 8.2% during the same period, which is great to see.

NasdaqGS: HLIO Past Profit Growth October 23, 2021

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. Has the market assessed the future prospects for HLIO? You can find out in our latest Intrinsic Value infographic research report.

Is Helios Technologies Efficiently Using Its Retained Earnings?

Helios Technologies has a low three-year median payout ratio of 23%, which means the company keeps the remaining 77% of its profits. This suggests that management is reinvesting most of the profits to grow the business.

In addition, Helios Technologies has paid dividends over a period of at least ten years, which means the company is very serious about sharing its profits with its shareholders. Our latest analyst data shows the company’s future payout ratio is expected to drop to 7.5% over the next three years. Thus, the expected drop in the payout ratio explains the expected increase in the company’s ROE to 16% over the same period.

Summary

Overall, we are quite satisfied with the performance of Helios Technologies. Specifically, we like the fact that the company reinvests a large portion of its profits at a high rate of return. This of course enabled the company to experience substantial growth in profits. That said, the latest forecast from industry analysts shows that the company’s profits are expected to pick up. 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.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. 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.

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