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Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company. Having said that, on studying current analyst estimates, we were concerned to see that while the company has grown its earnings in the past, analysts expect its earnings to shrink in the future. As highlighted earlier, the current reinvestment rate appears to be quite low. Still, the high ROE could have been even more beneficial to investors had the company been reinvesting more of its profits. The company has grown its earnings moderately as previously discussed.
On the whole, we do feel that Ethan Allen Interiors has some positive attributes. This implies that the company has been able to achieve high earnings growth despite returning most of its profits to shareholders.Īdditionally, Ethan Allen Interiors has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Is Ethan Allen Interiors Efficiently Re-investing Its Profits?Įthan Allen Interiors has a significant three-year median payout ratio of 67%, meaning the company only retains 33% of its income. Is ETD fairly valued? This infographic on the company's intrinsic value has everything you need to know. Doing so will help them establish if the stock's future looks promising or ominous. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Therefore, it might not be wrong to say that the impressive five year 21% net income growth seen by Ethan Allen Interiors was probably achieved as a result of the high ROE.Įarnings growth is an important metric to consider when valuing a stock. Further, even comparing with the industry average if 22%, the company's ROE is quite respectable. A Side By Side comparison of Ethan Allen Interiors' Earnings Growth And 25% ROEįirstly, we acknowledge that Ethan Allen Interiors has a significantly high ROE. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. What Is The Relationship Between ROE And Earnings Growth? Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.25 in profit. So, based on the above formula, the ROE for Ethan Allen Interiors is:Ģ5% = US$103m ÷ US$407m (Based on the trailing twelve months to June 2022). Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
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