Standex International Corporation (NYSE:SXI) financials are too murky to relate to current stock price momentum: What’s in store for the stock?

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Standex International (NYSE:SXI) stock is up 7.7% over the past three months. Given that stock prices generally follow long-term trading performance, we wonder if the company’s mixed financials could have a negative effect on its current price movement. Specifically, we decided to study Standex International’s ROE in this article.

Return on equity or ROE is a key metric used to gauge how effectively a company’s management is using the company’s capital. In simple terms, it is used to assess the profitability of a company in relation to its equity.

Discover our latest analysis for Standex International

How to calculate return on equity?

the ROE formula is:

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

So, based on the above formula, the ROE for Standex International is:

8.6% = $44 million ÷ $513 million (based on trailing 12 months to September 2021).

The “yield” is the amount earned after tax over the last twelve months. This means that for every dollar of shareholders’ equity, the company generated $0.09 in profit.

What is the relationship between ROE and earnings growth?

So far we have learned that ROE is a measure of a company’s profitability. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Generally speaking, all things being equal, companies with high return on equity and earnings retention have a higher growth rate than companies that do not share these attributes.

Earnings growth and ROE of 8.6% from Standex International

At first glance, there is not much to say about Standex International’s ROE. We then compared the company’s ROE to the entire industry and were disappointed to see that the ROE is below the industry average of 13%. Therefore, Standex International’s stable earnings over the past five years may possibly be explained by low ROE, among other factors.

As a next step, we compared Standex International’s net income growth with the industry and found that the industry grew by an average of 8.5% over the same period.

NYSE: SXI Past Earnings Growth November 30, 2021

Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. What is SXI worth today? The intrinsic value infographic in our free research report helps visualize whether SXI is currently being mispriced by the market.

Does Standex International effectively reinvest its profits?

Despite a normal three-year median payout ratio of 26% (implying the company retains 74% of its revenue) over the past three years, Standex International has seen negligible earnings growth, as we have seen. seen above. So there could be other factors at play here that could potentially impede growth. For example, the company had to deal with headwinds.

Additionally, Standex International has paid dividends over a period of at least ten years, which means the company’s management is committed to paying dividends even if it means little or no earnings growth.

Conclusion

All in all, we are a little mixed on the performance of Standex International. Although the company has a high earnings retention rate, its low rate of return is likely hampering its earnings growth. That being the case, the latest forecasts from industry analysts show that analysts are expecting a huge improvement in the company’s earnings growth rate. For more on the company’s future earnings growth forecast, check out this free analyst forecast report for the company to learn more.

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