Advertisement
Singapore markets closed

  • Straits Times Index

    3,336.59
    +13.21 (+0.40%)
     

  • Nikkei

    38,487.90
    +433.77 (+1.14%)
     

  • Hang Seng

    18,079.61
    -150.58 (-0.83%)
     

  • FTSE 100

    8,275.38
    +44.33 (+0.54%)
     

  • Bitcoin USD

    67,620.01
    +372.20 (+0.55%)
     

  • CMC Crypto 200

    1,423.83
    -4.74 (-0.33%)
     

  • S&P 500

    5,277.51
    +42.03 (+0.80%)
     

  • Dow

    38,686.32
    +574.84 (+1.51%)
     

  • Nasdaq

    16,735.02
    -2.06 (-0.01%)
     

  • Gold

    2,347.70
    -18.80 (-0.79%)
     

  • Crude Oil

    77.18
    -0.73 (-0.94%)
     

  • 10-Yr Bond

    4.5140
    -0.0400 (-0.88%)
     

  • FTSE Bursa Malaysia

    1,596.68
    -7.58 (-0.47%)
     

  • Jakarta Composite Index

    6,970.74
    -63.41 (-0.90%)
     

  • PSE Index

    6,433.10
    +61.35 (+0.96%)
     

Is NobleOak Life Limited's (ASX:NOL) Recent Price Movement Underpinned By Its Weak Fundamentals?

editorial-team@simplywallst.com (Simply Wall St)
·3-min read

It is hard to get excited after looking at NobleOak Life's (ASX:NOL) recent performance, when its stock has declined 21% over the past three months. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study NobleOak Life's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for NobleOak Life

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

ADVERTISEMENT

So, based on the above formula, the ROE for NobleOak Life is:

6.7% = AU$8.0m ÷ AU$120m (Based on the trailing twelve months to June 2023).

The 'return' is the yearly profit. That means that for every A$1 worth of shareholders' equity, the company generated A$0.07 in profit.

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

NobleOak Life's Earnings Growth And 6.7% ROE

On the face of it, NobleOak Life's ROE is not much to talk about. Next, when compared to the average industry ROE of 10%, the company's ROE leaves us feeling even less enthusiastic. Hence, the flat earnings seen by NobleOak Life over the past five years could probably be the result of it having a lower ROE.

Next, on comparing with the industry net income growth, we found that the industry grew its earnings by 7.3% over the last few years.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. If you're wondering about NobleOak Life's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is NobleOak Life Using Its Retained Earnings Effectively?

NobleOak Life doesn't pay any dividend, which means that it is retaining all of its earnings. This makes us question why the company is retaining so much of its profits and still generating almost no growth? So there could be some other explanations in that regard. For instance, the company's business may be deteriorating.

Conclusion

On the whole, we feel that the performance shown by NobleOak Life can be open to many interpretations. Even though it appears to be retaining most of its profits, given the low ROE, investors may not be benefitting from all that reinvestment after all. The low earnings growth suggests our theory correct. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.